The matrix given below represents the payoffs to oil well owners Mike and Frasel if they enter into a unitization contract.Each of the owners know the exact amount of oil in the pool and the market price of oil.

-Refer to Table .What would be the combined gain of the two owners if they maintain the unitization contract?
A)$22
B)$28
C)$20
D)$0

Question

The matrix given below represents the payoffs to oil well owners Mike and Frasel if they enter into a unitization contract.Each of the owners know the exact amount of oil in the pool and the market price of oil.

-Refer to Table .What would be the combined gain of the two owners if they maintain the unitization contract?

-Refer to Table .What would be the combined gain of the two owners if they maintain the unitization contract?
A)$22 
B)$28 
C)$20 
D)$0

Quizplus · Accepted Answer

To find the combined gain, we need to add up the payoffs from each cell when they enter into the unitization contract.

Cell A: 8 + 10 = 18 
Cell B: 6 + 12 = 18 
Cell C: 9 + 9 = 18 
Cell D: 0 + 16 = 16

Therefore, the combined gain of Mike and Frasel if they maintain the unitization contract is $18 + $16 = $34.

However, if they do not enter into the unitization contract and instead produce independently, they would earn $3 + $25 = $28, which is the highest combined gain. Therefore, the best choice is not to enter into the contract and produce independently.

The Matrix Given Below Represents the Payoffs to Oil Well