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Question: Different divisions within a firm frequently compete for a common resource. Suppose that divisions 1 and 2 of a given firm share a common facility F. Let yi be the service level used by division i (i = 1:2). Division is gross benefit in terms of improved divisional earnings is given by yi - 0.25yi2 - 0.1(y1 + y2).

(a) What are the equilibrium levels of y_i if the various divisions act separately?

(b) What are the optimal levels of y_i from an overall firm point of view?

(c) Explain the difference between the results in (a) and (b).

(d) How can equilibrium and optimality be reconciled?

Microeconomics, Economics

  • Category:- Microeconomics
  • Reference No.:- M92584930

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