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Scenario 17-2 Imagine That Two Oil Companies, Big Petro Inc.and Gargantuan Gas

Question 109

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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.Gargantuan Gas's dominant strategy would lead to what sort of well-drilling behaviour

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.Gargantuan Gas's dominant strategy would lead to what sort of well-drilling behaviour


A) Gargantuan Gas will not drill a second well under any circumstances.
B) Gargantuan Gas will drill a second well no matter what Big Petro Inc.does.
C) Gargantuan Gas will drill a second well only if Big Petro Inc.drills a well.
D) Gargantuan Gas will drill a second well only if Big Petro Inc.does not drill a well.

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