1. Suppose that the outputs of beauty shops and pet-grooming salons are complementary, providing one-stop shopping for personal and pet maintenance. Betty Beehive is thinking about moving her beauty shop from an isolated location to a vacant building next to Peter's pet-grooming shop. In making her decision, she makes the following assumptions:

[i] If Betty moves, she will keep all of her current customers (20 people per week), and attract 25 percent of Peter's current customers.

[ii] Peter currently has 60 customers per week.

[iii] Excluding rent, Betty's profit per beauty treatment is $10.

[iv] The weekly rent at the new location is $200 higher than Betty's current rent.

a. If Betty moves her beauty shop, will her profits increase or decrease? Explain

b. Suppose that if Betty makes the move, 50 percent of her original customers will switch from George's grooming salon to Peter's. If Peter's profit per treatment is $8, how much would he be willing to pay Betty to make the move? Will the payment be enough to induce Betty to make the move? Explain.