1-ArmaCo must determine whether or not to drill for oil at theNorthern part of Jubail. It costs $100,000 to drill, and if oil isfound, the value is estimated to be $600,000. At present, ArmaCobelieves there is a 45% chance that the field contains oil with theprofit payoffs give in the table below. Alternatives State ofNature Oil Dry Drill 500 –100 No Drill 0 0 a. [0.5 Mark] Show thedecision tree for the situation. b. Which alternative should theArmaco choose using: i. [1 Mark] the optimistic approach ii. [1Mark] the conservative approach iii. [1 Mark] the minimax regretapproach. c. [1 Mark] Determine which alternative should be chosenbased on expected value. d. [1 Mark] Determine the expected valuewith perfect information. e. [1 Mark] Determine the expected valueof the perfect information.

2-Before drilling, ArmaCo can hire (for $10,000) a geologist toobtain more information about the likelihood that the field willcontain oil. There is a 50% chance that the geologist will issue afavorable report and a 50% chance of an unfavorable report. Given afavorable report, there is an 80% chance that the field containsoil. Given an unfavorable report, there is a 10% chance that thefield contains oil. f. [1 Mark] Show the decision tree for thesituation. g. [1 Mark] Determine ArmaCo’s optimal course of action.h. [0.5 Mark] How much is the expected profit? i. [1 Mark]Determine the Expected Value of Sample Information.