In Drilling a New Oil Well in an Existing Oil

question 31

Multiple Choice

In drilling a new oil well in an existing oil field,the fact that output on existing wells is reduced means that

• A)existing wells have negatively sloped marginal cost curves.
• B)existing wells and new wells are owned by different people.
• C)existing wells and new wells are owned by the same people.
• D)there is a discrepancy between private and social marginal costs.

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Definitions:

Comparative Advantage

Comparative Advantage is the ability of an individual, company, or country to produce a good or service at a lower opportunity cost than its competitors.

Productive Advantage

A situation where a person or entity can produce goods or services at a lower opportunity cost than others.

Opportunity Cost

The cost of forgoing the next best alternative when making a decision, representing the benefits one misses out on when choosing one option over another.

Bushel

A unit of volume that is used in the United States for measuring agricultural commodities, usually grains.