3. 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)x₁-2x for store 1 and (90+ x1)x2 - 2x 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? Call this amount A₁. How much would store 1 spend on advertising if it and store 2 act as one firm that maximizes profit? Call this amount AM- 3.1 Calculate A

3. 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)x₁-2x for store 1 and (90+ x1)x2 - 2x 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? Call this amount A₁. How much would store 1 spend on advertising if it and store 2 act as one firm that maximizes profit? Call this amount AM- 3.1 Calculate A

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

3.2

3. 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)x₁-21 for store 1 and
(90+ x₁)x₂ - 2x 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? Call this amount A₁. How much
would store 1 spend on advertising if it and store 2 act as one firm that maximizes profit? Call
this amount A₁,M.
3.1 Calculate A₁,1-

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