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.

Question

Quizplus · Accepted Answer

To maximize total profits, set the derivative of the profit functions with respect to x₁ and x₂ to zero and solve the system of equations. Solving gives x₁ = 25.

Two Stores Are Located Side by Side and Attract Customers