Suppose two companies own adjacent oil fields. under the two fields is a common pool of oil worth $60 million. for each well that is drilled, the company that drills the well incurs a cost of $4 million. each company can drill up to two wells. what is the likely outcome of this game if each company pursues its own self-interest?

a. each company drills one well and experiences a profit of $26 million.

b. each company drills one well and experiences a profit of $22 million.

c. each company drills two wells and experiences a profit of $22 million.

d. one company drills two wells and experiences a profit of $32 million; the other company drills one well and experiences a profit of $16 million.

Question

Business

Ricardo Hansen

3 April, 23:37

Suppose two companies own adjacent oil fields. under the two fields is a common pool of oil worth $60 million. for each well that is drilled, the company that drills the well incurs a cost of $4 million. each company can drill up to two wells. what is the likely outcome of this game if each company pursues its own self-interest?

a. each company drills one well and experiences a profit of $26 million.

b. each company drills one well and experiences a profit of $22 million.

c. each company drills two wells and experiences a profit of $22 million.

d. one company drills two wells and experiences a profit of $32 million; the other company drills one well and experiences a profit of $16 million.

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Answers (1)

Know the Answer?

Clara Becker · Answer 1

For the answer to the question above, I think the answer is

$60 million divided by two companies

is $30 miilion

then less the well incurs at cost of $4 million.

So each company drills one well and experiences a profit of $26 million.