What is the probability of striking oil

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A firm is considering drilling an oil well. B1 is the event that the firm strikes a dry hole and B2 is the event that oil is found. Let P(B1) = 0.90 and P(B2) = 0.10. Drilling for oil is very expensive, and the firm can improve its decision (to drill or not to drill) by conducting a seismic test. Let A be the event that the seismic test indicate that there is oil in the field. Suppose P(A) = 0.35 and we assume that P(A¦B1) = 0.30 and P(A¦B2) = 0.80. In other words, if the field is dry, the probability that the test will suggest that there is oil in the field is 30 percent, but if oil is present, the probability that the test will suggest the present of oil is 80 percent. If the test indicates that there is oil in the field, what is the probability of striking oil?

Reference no: EM132170720

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