Two Stores Are Located Side by Side and Attract Customers

question 12

Multiple Choice

Two stores are located side by side and attract customers to each other and to themselves by advertising. Where x₁ and x₂ are the advertising expenditures of stores 1 and 2, the profits of the firms are (48 + x₂) x₁ - 2(x₁) ² for store 1 and (54 + x₁) x₂ - 2(x₂) ² for store 2. Knowing these functions, one investor buys both stores. In order to maximize his total profits, how much should he spend on advertising for store 1?

• A) $10
• B) $26
• C) $25
• D) $35
• E) None of the above.

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Definitions:

Income Responsiveness

The degree to which demand for a product or service changes in response to changes in consumer income.

Income Elasticity of Demand

A metric that gauges the sensitivity of demand for a product to shifts in the income of consumers.

Weekly Income

The total amount of earnings received by an individual or entity over the span of a week.

Bars of Chocolate

Solid blocks of chocolate that can vary in cocoa content, sweetness, and added ingredients, enjoyed as confectionary treats.