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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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