Suppose Two Companies Own Adjacent Oil Fields

question 89

Multiple Choice

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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Definitions:

Shared Understandings

The common beliefs, values, or norms that are accepted and recognized within a group or society, facilitating communication and cooperative action.

Status Cues

Indicators or signals that suggest or convey an individual's or group's social standing, prestige, or rank within a society.

Skin Color

A physical characteristic resulting from the pigment melanin, which varies widely among humans and is often used as a basis for social classification and identity.

Clothing

Garments and accessories worn on the body, often as a form of personal expression and to comply with social norms.