Scenario 17-2.

Imagine that two oil companies, BQ and Exxoff, own adjacent oil fields. Under the fields is a common pool of oil worth $144 million. Drilling a well to recover oil costs $5 million per well. If each company drills one well, each will get half of the oil and earn a $67 million profit ($72 million in revenue - $5 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 BQ were to drill a second well and Exxoff also drilled a second well, what would BQ's profit be?

Question

Scenario 17-2.
​
Imagine that two oil companies, BQ and Exxoff, own adjacent oil fields. Under the fields is a common pool of oil worth $144 million. Drilling a well to recover oil costs $5 million per well. If each company drills one well, each will get half of the oil and earn a $67 million profit ($72 million in revenue - $5 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 BQ were to drill a second well and Exxoff also drilled a second well, what would BQ's profit be?

Quizplus · Accepted Answer

If BQ drills a second well, they will get two-thirds of the oil and Exxoff will get one-third. BQ's total revenue will be $96 million ($48 million from each well). Subtracting the $10 million cost for two wells, BQ's profit will be $86 million.

Scenario 17-2. ​

Scenario 17-2.