TEXplor has purchased a 2-year lease on land adjacent to the land leased by Clampett. The land leased by TEXplor lies above the same crude oil deposit. Assume each company sinks wells of the same size at the same time. If both companies sink wide wells, each will extract 2 million barrels in 6 months, but each company will receive profit of only GHC 1 million. On the other if each company sinks a narrow well, it will take a year for Clampett and TEXplor to extract their respective shares, but their profits will be GHC14 million apiece. Finally, if one company drills a wide well while the other company drills a narrow well, the first company will extract 3 million barrels and the second company will extract only 1 million barrels. In this case, the first company will earn profits of GHC 16 million and the second company will actually lose GHC 1million. 1. Illustrate this using a normal form game. 2. Does either firm have a strictly dominant strategy? If yes, what is (are) these strategies? Explain your answer. 3. What strategy will each firm adopt? Explain your answer.
TEXplor has purchased a 2-year lease on land adjacent to the land leased by Clampett. The land leased by TEXplor lies above the same crude oil deposit. Assume each company sinks wells of the same size at the same time. If both companies sink wide wells, each will extract 2 million barrels in 6 months, but each company will receive profit of only GHC 1 million. On the other if each company sinks a narrow well, it will take a year for Clampett and TEXplor to extract their respective shares, but their profits will be GHC14 million apiece. Finally, if one company drills a wide well while the other company drills a narrow well, the first company will extract 3 million barrels and the second company will extract only 1 million barrels. In this case, the first company will earn profits of GHC 16 million and the second company will actually lose GHC 1million. 1. Illustrate this using a normal form game. 2. Does either firm have a strictly dominant strategy? If yes, what is (are) these strategies? Explain your answer. 3. What strategy will each firm adopt? Explain your answer.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
Related questions
Question
![TEXplor has purchased a 2-year lease on land adjacent to the
land leased by Clampett. The land leased by TEXplor lies
above the same crude oil deposit. Assume each company
sinks wells of the same size at the same time. If both
companies sink wide wells, each will extract 2 million barrels
in 6 months, but each company will receive profit of only
GHC 1 million. On the other if each company sinks a narrow
well, it will take a year for Clampett and TEXplor to extract
their respective shares, but their profits will be GHC14
million apiece. Finally, if one company drills a wide well
while the other company drills a narrow well, the first
company will extract 3 million barrels and the second
company will extract only 1 million barrels. In this case, the
first company will earn profits of GHC 16 million and the
second company will actually lose GHC 1million.
1. Illustrate this using a normal form game.
2. Does either firm have a strictly dominant strategy? If yes,
what is (are) these strategies? Explain your answer.
3.
What strategy will each firm adopt? Explain your
answer.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fafe459b7-48db-483d-b815-c176a00369cd%2Fbd038526-2518-4440-8edb-01726543f9d8%2Fo8faijr.jpeg&w=3840&q=75)
Transcribed Image Text:TEXplor has purchased a 2-year lease on land adjacent to the
land leased by Clampett. The land leased by TEXplor lies
above the same crude oil deposit. Assume each company
sinks wells of the same size at the same time. If both
companies sink wide wells, each will extract 2 million barrels
in 6 months, but each company will receive profit of only
GHC 1 million. On the other if each company sinks a narrow
well, it will take a year for Clampett and TEXplor to extract
their respective shares, but their profits will be GHC14
million apiece. Finally, if one company drills a wide well
while the other company drills a narrow well, the first
company will extract 3 million barrels and the second
company will extract only 1 million barrels. In this case, the
first company will earn profits of GHC 16 million and the
second company will actually lose GHC 1million.
1. Illustrate this using a normal form game.
2. Does either firm have a strictly dominant strategy? If yes,
what is (are) these strategies? Explain your answer.
3.
What strategy will each firm adopt? Explain your
answer.
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