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Andrew [12]
2 years ago
5

Suppose two companies own adjacent oil fields. Under the two fields is a common pool of oil worth $60 million. For each well tha

t 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?
Business
1 answer:
AlekseyPX2 years ago
8 0

Answer:

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

Explanation:

If each company acts independently and drills two oil wells each they will have a total of 4 wells each worth (60 million ÷ 4= $15 million.

Each company will have two oil wells which equals (2* 15 million = $30 million)

But each company incurs cost of $4 million per well. That is total cost of $8 million.

Therefore the profit for each company will be $30 million - $8 million= $22 million

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