vertical mergers, assume two firms work together to produce a product. Firm 1 has an investment level of i1 and firm 2 has an investment level of i2. The value V' of the two firms is given by the equation V= sqrt(1) + sqrt(i2). when investing it costs the firms -i1, -12. once the level of investmnt levels are determined, the value of V is divided evenly between the two firms. a. what is the nash equilibrium levels of investment and the resultant payoffs of either firm b. if the two firms merge, what is the optimal investment levels and payoffs of the new single firm?
vertical mergers, assume two firms work together to produce a product. Firm 1 has an investment level of i1 and firm 2 has an investment level of i2. The value V' of the two firms is given by the equation V= sqrt(1) + sqrt(i2). when investing it costs the firms -i1, -12. once the level of investmnt levels are determined, the value of V is divided evenly between the two firms. a. what is the nash equilibrium levels of investment and the resultant payoffs of either firm b. if the two firms merge, what is the optimal investment levels and payoffs of the new single firm?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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