Hello, the answer is provided, please explain the theory steeply step in details on how to approach this question , rather than copying the answer, thanks !

Firm 1 and Firm 2 are competing for a franchise. The present value of the net revenues generated by the franchise is equal to R. Each firm's probability of winning the franchise is given by its proportion of the total spent by the two firms on lobbying the local government committee that awards the franchise. That is, if 11 and 12 represent the lobby expenditures of Firm 1 and Firm 2, respectively, then Firm's 1's probability of winning is 11/(11 +12) and Firm 2's probability of winning is 12/01 +12). If each firm assumes that the other firm's spending is independent of its own, what is the equilibrium level of spending for each rm? Assume that the rms are risk neutral. ANSWER: The expected profit of Firm 1 is: E(1r1) = (1 1:1 ) 1 2 expected profit with respect to investment results in 11 = (Rlz)1/2 12. Firm 2's best response function is isomorphic; and in equilibrium botl) firms Will in vest and amount equal to R/4. R 11. Maximising