The following matrix represents the payoffs to oil well owners Mike and Frasel.Each of the owners know the exact amount of oil in the pool and the market price of oil.

-Refer to Table .What will be the payoff to each producer in the presence of a unitization contract?
A)Each producer will earn $10
B)Frasel will earn $6 while Mike will earn $16
C)Frasel will earn $16 while Mike will earn $6
D)Each well owner will earn $14.

Question

The following matrix represents the payoffs to oil well owners Mike and Frasel.Each of the owners know the exact amount of oil in the pool and the market price of oil.

-Refer to Table .What will be the payoff to each producer in the presence of a unitization contract?
A)Each producer will earn $10 
B)Frasel will earn $6 while Mike will earn $16 
C)Frasel will earn $16 while Mike will earn $6 
D)Each well owner will earn $14.

Quizplus · Accepted Answer

Under a unitization contract, the total profit of $28 (from both wells combined) is shared equally between the two producers, resulting in each earning $14.

The Following Matrix Represents the Payoffs to Oil Well Owners