The Red Chest can be merged up to Level 2 and with every drop, you have the chance to get Scissors, an Hourglass, Bronze Coins, Energy, and Workbench and Sewing Kit items which can be merged to create Producers.
Merging a Red Chest to Level 2 will grant you more rewards than Level 1, so merging is always a good idea!
Red Chests are received as rewards from tasks and events.