Linear Programming Problem using EXCEL Solver

Senior executives of an oil company are trying to decide whether to drill for oil in a particular field. It costs the company $300,000 to drill in the selected field. Company executives believe that if oil is found in this field its estimated value will be $1, 800, 000. At present, this oil company believes that there is a 48% chance that the selected field actually contains oil. Before drilling, the company can hire a geologist at a cost of $30,000 to prepare a report that contains a recommendation regarding drilling in the selected field. There is a 55% chance that the geologist will issue a favorable recommendation and a 45% chance that the geologist will issue an unfavorable recommendation. Based on the track record and prior accuracy of the geologist’s recommendations we have the following information. Given a favorable recommendation from the geologist, there is a 75% chance that the field actually contains oil. Given an unfavorable recommendation from the geologist, there is a 15% chance that the field actually contains oil.

The oil company wishes to maximize its expected net earnings. 

(a) Structure the oil company’s problem as a decision tree. Draw this tree by hand (or electronically) and include it along with your submission. Your drawing should clearly indicate the structure and logic of the tree (i.e., it should distinguish between decision nodes and event nodes). It should also have all probabilities shown on appropriate branches, and indicate the value (earnings) associated with each end node. 

(b) Implement your tree using Precision Tree. Submit your Precision Tree implementation. 

(c) What is your recommended decision strategy? Make sure to state the best strategy completely in words; otherwise no credit will be given.