Question
A developer wishes to purchase two contiguous parcels of land for the purpose of building a large factory. Since each parcel alone is too small
A developer wishes to purchase two contiguous parcels of land for the purpose of building a large factory. Since each parcel alone is too small for his factory, each parcel is only worth $30,000 to the developer. However, both parcels together are worth a combined $100,000 to the developer, as both parcels permit him to erect the factory. Two contiguous parcels of land are owned independently by landowner 1 and landowner 2. Landowner 1's reservation price for her parcel is $35,000, while landowner 2's reservation price for his parcel is $50,000. The developer is debating whether to sequentially negotiate with the two landowners in an attempt to purchase both parcels. If the developer proceeds, he will first negotiate with landowner 1 prior to negotiating with landowner 2. 1. Is it efficient for the developer to purchase both parcels of land? Yes No 2.Is it efficient for the developer to purchase only one of the parcels of land? Yes No 3.Suppose the developer engages in Nash bargaining with landowner 2. (Remember, the developer negotiates with landowner 1 first.) What is the resulting price for landowner 2's parcel of land? $ 4. What is the resulting price for landowner 1's parcel of land? $
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