L&T is looking into the possibility of expanding their operations in Columbia and has invited a contractor to bid on a construction job. The value of the contract depends on the length of time it takes to complete the project. If the project is finished on time, there is a profit of $50,000. IF the contractor is late finishing the project, he will lose $10,000. Weather is the SOLE determinant of whether the project will be late. If the weather is good, the project will be completed on time; if it is bad, the project will not be completed on schedule. Based on his past experience the contractor’s subjective probability of good weather is 20%. The contractor, however, has the opportunity to buy a long-range forecast from an independent weather-forecasting company. The weather-forecasting company has a fairly good track record for these long-range forecasts. Its files indicate that 70% of the time it successfully predicted good weather, and 80% of the time it was able to predict bad weather. In other words, If I1 = prediction of good weather
I2 = prediction of bad weather
S1 = good weather
S2 = bad weather

P(I1/S1) = 0.7 P(I1/S2) = 0.2
P(I2/S1) = 0.3 P(I2/S2) = 0.8

The cost of weather-forecasting service is $5,000