Two Stores Are Located Side by Side and Attract Customers

question 38

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:

Bond

A financial instrument in which an investor loans money to an entity (corporate or governmental) that borrows the funds for a defined period at a specified interest rate.

Semiannual Interest

Interest that is calculated and paid twice a year, typically used in the context of bonds and loans.

Market Rate

The prevailing price or interest rate at which goods, services, or securities are bought and sold in a competitive marketplace.

Straight-Line Method

A method of calculating depreciation or amortization by evenly spreading the cost of an asset over its useful life.