Two Stores Are Located Side by Side

question 37

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:

Vertical Mergers

Mergers between companies that operate at different stages within an industry's supply chain, aiming to increase synergies and efficiency.

IRS

The Internal Revenue Service, the U.S. federal agency responsible for administering and enforcing the tax laws and collecting taxes.

Tax Savings

Reductions in tax payments achieved through allowable deductions, credits, or other legal means.

Merger

The combination of two or more companies into a single entity, usually to increase market share or efficiency.