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 $2 million per well. If each company drills one well, each will get half of the oil and earn a $10 million profit ($12 million in revenue - $2 million in costs). If a company has X per cent of the total wells, then it will collect X per cent of the total revenue.
-According to the information provided, 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?

Question

Quizplus · Accepted Answer

If both companies drill two wells each, they will each have 50% of the total wells, thus each will still receive 50% of the $24 million revenue. Therefore, each company will earn $12 million in revenue. Subtracting the cost of drilling two wells ($4 million), Big Petro Inc.'s profit would be $8 million.

Imagine That Two Oil Companies, Big Petro Inc