toiwn that is served by two grocery stores, White and Gray. Each store must deci

Question

toiwn that is served by two grocery stores, White and Gray. Each store must decide whether i wil remain open on Sundays or whether it will close on that day. If both stores decide to close, then each has monthly profits of $21,000. However, if one is open and the other is closed, the open one has profits of $25,000 and the closed one has profits of $17,000. If both remain open on Sundays, then each has profits of $20,000. a) Why might profits be lower if both are open on Sundays than if both are closecd on Sundays? 7 marks

Explanation / Answer

If both stores remain open on Sundays, both stores must incur some operational costs, which might include the cost of electricity, packaging and delivery costs, rottening of vegtables, and other numerous costs. The revenue on the other hand would be low because of the competition from the other store, thereby giving small profits. Hence, the profits when both stores open on Sunday is lower, as compared to when they close on Sundays, since then, though there is no revenue involved, there wouldn't be any costs of operation.

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