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    Calculating Probabilities

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    I need help with the following questions. Please show your work so I can practice with other problems.

    Thank you

    An oil company purchased an option on land in Oklahoma. Preliminary studies assigned the follwing prior probabilities.

    P(high-quality oil) = .50
    P(medium-quality oil) = .20
    P(no oil) = .30

    a. What is the probablility of finding oil?
    b. After 200 feet of drilling on the first well, a soil test is made. The probabilities of finding the particular type of soil identified by the test are:

    P(soil/high-quality oil) = .20
    P(soil/medium-quality oil) = .80
    P(soil/no oil) = .20

    a. How should the firm interpret the soil test?
    b. What are the revised probabilities, & what is the new probability of finding oil?

    Thanks again.

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    Solution Preview

    Please see the attached file for a better formatted solution

    An oil company purchased an option on land in Oklahoma. Preliminary studies assigned the following prior probabilities.

    P(high-quality oil) = .50
    P(medium-quality oil) = .20
    P(no oil) = .30

    a. What is the probability of finding oil?

    Since we only have ...

    Solution Summary

    The solution is in a word document format that shows step by step calculation of the probabilities

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