Imagine that two oil companies, BQ and Exxoff, own adjacent oil fields. Under th
ID: 1107521 • Letter: I
Question
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, what would its profit be if Exxoff did not drill a second well?
Explanation / Answer
Given above the total number of wells will be 3. This implies BQ owns 2/3*100= 67% of wells.Now total profit will be 67*3 = 201 . So Profit of BQ will also be 67% of total profit i.e. 67% of 201 is (67/100)*201 = 134.67 .