A beam may have an internal crack in it. You are entrusted with the decision of whether to spend $5000 in repairs. You a

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A Beam May Have An Internal Crack In It You Are Entrusted With The Decision Of Whether To Spend 5000 In Repairs You A 1 (377.51 KiB) Viewed 40 times

A beam may have an internal crack in it. You are entrusted with the decision of whether to spend $5000 in repairs. You also have available the use of non-destructive testing (NDT) techniques to determine if the crack exists. If there is a crack there is a 70% probability that the beam will fail causing damage to the order of $17000, otherwise the damage is 0. The NDT technique is 99% accurate in determining that a crack exists when there actually is one, and is 80% accurate in determining that no crack exists when there actually is none. How much will you pay for this test if your utility function is x U(x)=1-e 7000 and the NDT is 35% likely to say there is a crack present? Show all calculations in answer submitted.