Two Stores Are Located Side by Side

question 34

Multiple Choice

Two stores are located side by side. They attract customers to each other and to themselves by advertising. The profit functions of the two stores are (45 + x₂) x₁ - 2x²₁ for store 1 and (90 + x₁) x₂ - 2x²₂ for store 2, where x₁ and x₂ are total advertising expenditures by stores 1 and 2 respectively. If each store sets its advertising expenditures independently (as in Nash equilibrium) , how much would store 1 spend on advertising?

• A) $18
• B) $20
• C) $15
• D) $23
• E) None of the above.

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Definitions:

Cash Balance

The amount of cash a company or individual has available after all transactions have been accounted for.

Checks

Written, dated, and signed instruments that direct a bank to pay a specific sum of money to the bearer.

First National Bank

A commonly used name for banks in various countries, typically indicating it was the first bank chartered under national laws.

Deposit Slip

A document that accompanies bank deposits, detailing the amount of cash and/or checks being deposited.