Consider the oil-drilling game depicted in Figure 5.4 in which payoffs are in millions of dollars. Suppose that this game is played repeatedly and the probability that the game will end in the next round is 10 percent and the discount rate is 25 percent. What is the present value of the stream of payoffs from not cooperating? FIGURE 5.4 PETROX O Narrow Wide O An amount between $85.7 and $85.8 million. Payoffs: (PETROX, GLOMAR) An amount between $113.7 and $113.8 million. An amount between $185.7 and $185.8 million. GLOMAR Narrow O An amount between $210.8 and $210.9 million. (52, 52) (108, 20) Wide (20, 108) (24, 24)
Consider the oil-drilling game depicted in Figure 5.4 in which payoffs are in millions of dollars. Suppose that this game is played repeatedly and the probability that the game will end in the next round is 10 percent and the discount rate is 25 percent. What is the present value of the stream of payoffs from not cooperating? FIGURE 5.4 PETROX O Narrow Wide O An amount between $85.7 and $85.8 million. Payoffs: (PETROX, GLOMAR) An amount between $113.7 and $113.8 million. An amount between $185.7 and $185.8 million. GLOMAR Narrow O An amount between $210.8 and $210.9 million. (52, 52) (108, 20) Wide (20, 108) (24, 24)
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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