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 $48 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 $22 million profit ($24 million in revenue - $2 million in costs). Assume that having X percent of the total wells means that a company will collect X percent of the total revenue.
If Big Petro Inc. were to drill a second well, what would its profit be if Gargantuan Gas did not drill a second well?
a. $22 million
b. $24 million
c. $26 million
d. $28 million
Answer: D
Microeconomics
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