Physics > QUESTIONS & ANSWERS > National University of SingaporeDAO 1704DAO1704 Assignment 5 (All)

National University of SingaporeDAO 1704DAO1704 Assignment 5

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Q1: A nuclear power company is deciding whether to build a nuclear power plant at Diablo Canyon or at Roy Rogers City. The cost of building the power plant is $10 million at Diablo and $20 million a ... t Roy Rogers City. If the company builds at Diablo, however, and an earthquake occurs at Diablo during the next five years, construction will be terminated and the company will lose $10 million (and will still have to build a power plant at Roy Rogers City). Without further expert information the company believes there is a 20% chance that an earthquake will occur, at Diablo during the next five years. For $1 million, a geologist can be hired to analyze the fault structure at Diablo Canyon. She will predict either that an earthquake will occur or that an earthquake will not occur. The geologist’s past record indicates that she will predict an earthquake with probability 0.95 if an earthquake will occur, and she will predict no earthquake with probability 0.90 if an earthquake will not occur. Should the power company hire the geologist? Also, calculate and interpret EVSI and EVPI. Let Positive be when the information given predicts an earthquake, and Negative be when the information given predicts no earthquake. Given: P(Positive|Earthquake) = 0.95 P(Positive|No Earthquake) = 0.10 P(Negative|Earthquake) = 0.05 P(Negative|No Earthquake) = 0.90 P(Earthquake) = 0.20 P(No Earthquake)= 0.80Calculation: P(Positive) = P(Positive∩Earthquake) + P(Positive∩No Earthquake) = P(Positive|Earthquake)P(Earthquake) + P(Positive|No Earthquake)P(No Earthquake) = 0.95*0.2+0.10*0.8 = 0.27 [Show More]

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