Scenario 17-2 Imagine that two oil companies, Big Petro Inc. and Gargantuan Gas, own adjacent oil fields. Under the fields is a common pool of oil worth $24 million. Drilling a well to recover oil costs $1 million per well. If each company drills one well, each will get half of the oil and earn a $11 million profit ($12 million in revenue minus $1 million in costs). Assume that having X percent of the total wells means that a company will collect X percent of the total revenue. Refer to Scenario 17-2. If Big Petro Inc. were to drill a second well and Gargantuan Gas also drilled a second well, what would Big Petro Inc.'s profit be? A. $10 million B. $7 million C. $9 million D. $8 million

Scenario 17-2 Imagine that two oil companies, Big Petro Inc. and Gargantuan Gas, own adjacent oil fields. Under the fields is a common pool of oil worth $24 million. Drilling a well to recover oil costs $1 million per well. If each company drills one well, each will get half of the oil and earn a $11 million profit ($12 million in revenue minus $1 million in costs). Assume that having X percent of the total wells means that a company will collect X percent of the total revenue. Refer to Scenario 17-2. If Big Petro Inc. were to drill a second well and Gargantuan Gas also drilled a second well, what would Big Petro Inc.'s profit be? A. $10 million B. $7 million C. $9 million D. $8 million

Microeconomics: Principles & Policy

14th Edition

ISBN:9781337794992

Author:William J. Baumol, Alan S. Blinder, John L. Solow

Publisher:William J. Baumol, Alan S. Blinder, John L. Solow

Chapter9: The Financial Markets And The Economy: The Tail That Wags The Dog

Section: Chapter Questions

Problem 5TY

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