Question

Assume a profitable economic well produces an average income of $23 million, while the average cost of a dry hole is $1.2 million. How much profit can be expected from a 100-well drilling program?

Answer 1

The most appropriate choice for revenue and profit will be given by-

Profit expected from a 100-well drilling program = $$146.2$

What is revenue and profit?

Total income generated by sale of goods and service is called revenue.

If $p$ is the cost of producing one unit of a commodity and $q$ is the number of units of the commodity, then the product of $p$ and $q$ gives the revenue.

If the revenue obtained by selling a commodity is more than the cost, difference between revenue and cost gives the profit.

Here,

Number of economic wells = 11

An economic well produces an average income of $23

Revenue obtained = $$(23 \times 11)$

Number of dry wells = $100 - 11$

                                  = $89$

Average cost of a dry hole is $1.2 million

Cost of 89 dry holes = $$(89 \times 1.2)$

                                   = $$106.8$

Profit = Revenue - cost

         = $$(253-106.8)$

         = $$146.2$

Profit  expected from a 100-well drilling program = $$146.2$

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Complete Question

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Assume a profitable economic well produces an average income of $23 million, while the average cost of a dry hole is $1.2 million. How much profit can be expected from a 100-well drilling program?