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Suppose that two oil companies – BP and Exxon – own adjacent natural gas fields. The profits that each firm earns depends on both the number of wells it drills and the number of wells drilled by the other firm. The table below lists each firm’s individual profits:

Еxxon Drill two wells Drill one well Exxons profit= $10 million BPs profit $10 million Exxons profit = $6 million BPs pro

a. Does Exxon have a dominant strategy? If so, describe it. b. Does BP have a dominant strategy? If so, describe it. c. What is the Nash equilibrium of this game? d. Explain how this game relates to Duopolies. If the firms were able to successfully collude would they be better off? Why is collusion difficult?

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