Two Stores Are Located Side by Side

question 19

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 (75 + x₂) x₁ - 2x²₁ for store 1 and (105 + 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) $27
• B) $29
• C) $32
• D) $24
• E) None of the above.

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Definitions:

Outdoor Advertising

A form of media used to deliver promotional messages to consumers in outdoor spaces, such as billboards, bus stops, and digital screens.

Flexibility

The ability to adapt to changes, challenges, or new requirements in an efficient and timely manner.

Reminder Advertising

A type of advertising that seeks to keep the product before the public in an effort to reinforce previous promotional activity.

Growth Stage

The stage of the product life cycle characterized by increases in sales, profits, and competition.