An oil company purchased an option on land in Alaska. Some studies found these p

Question

An oil company purchased an option on land in Alaska. Some studies found these probabilities:

P(finding high-quality oil) = 0.5
P(medium-quality) = 0.2
P(no oil) = 0.3

A. What is the probability of finding oil?
After 200 feet of drilling on the first well, a soil test is taken. The probabilities of finding the particular type of soil identified by the test follow:

P(finding the type of soil given there is high-quality oil) = 0.2
P(soil given medium quality oil) = 0.8
P(soil given no oil) = 0.2

B. How should the firm interpret the test?
C. What are the revised probabilities of finding each type of oil?
D. What is the new probability of finding oil?

I have no idea how to approach this problem. Please help.

Explanation / Answer

You can only ask 1 question per post Answer to number 1 is here, http://faculty.chicagobooth.edu/nicholas.polson/teaching/41000/midterm1.pdf Take care

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