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please help this question Question 1 In this question, we will consider a version of the asset ownership model where the (S) upplier makes a

please help this question

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Question 1 In this question, we will consider a version of the asset ownership model where the (S) upplier makes a cost-saving investment that does not directly increase the final value V. As usual, there is a (S)eller and a (B)uyer. B needs a widget for production. If production is suc- cessful, then total value is Up + Us = V. The widget requires an asset to produce; B but not S can use the asset to make the widget noncooperatively, so Ug = V and Us = 0. Further, assume that US = Up = 0; the party without the asset cannot create any value noncooperatively. S chooses investment e at cost -e. B chooses investment E at cost - (E - Ee). That is, a larger investment by S reduces the cost of investment for B. Suppose V = E; so only B's investment directly affects the value of the transaction. The game proceeds as usual: 1. Ownership of the machine is allocated. 2. S chooses e. 3. B chooses E. 4. B and S bargain. 5. B and S receive their payoffs. We'll work this out step-by-step: a) Calculate each player's outside option ng and It's, as well as the bargaining surplus, under B-ownership. b) Calculate each player's outside option ng and It's, as well as the bargaining surplus, under S-ownership. c) Under B-ownership, calculate B's investment E choice given e. Then, calculate the equilibrium investments e" and E" . d) Under S-ownership, calculate B's investment E choice given e. Then, calculate the equilibrium investments e" and E*. e) Compare total utility under B-ownership versus S-ownership. f) Explain, in words, why S-ownership is optimal even though only B's investment directly affects the total value V

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