Two Stores Are Located Side by Side

question 26

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 (75 + 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)$14
• B)$19
• C)$22
• D)$17
• E)None of the above.

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