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:

Proprioception

Information about the position of the body and its various parts.

Sensory Receptors

Specialized cells or nerve endings that detect and respond to stimuli, such as light, sound, touch, and temperature, facilitating perception.

Perception

The cognitive process of interpreting and making sense of sensory information to understand the environment around us.

Conscious Awareness

The state or quality of being aware of an external object or something within oneself.