You sell high-end shoes in New York City. Virtually all of your target market lives in NYC or the immediately surrounding suburbs. You have one store on 52nd Street and Fifth Avenue in Manhattan. This neighborhood is widely known for offering a broad range of luxury goods, and lies in close proximity to some of the most expensive real estate in the world (and by extension some of the wealthiest individuals in the world). The average price point across the line of shoes you sell in this location is $900. However, shoes are fairly inexpensive to make, even when marketing and all other costs are taken into account. You know that any sales above an average price point of $150 will increase your profits. Further, you know that lots of people in New York cannot afford $900 shoes. Accordingly, you decide to open a 2nd retail location which will sell the exact same line at an average price point of $250.

a) Please describe the general characteristics of an optimal location for your 2nd store.

b) Total quantity sold exactly doubles once you open the new store. Some fraction of the people who used to shop on Fifth Avenue end up switching to your new store. How high can this fraction get before you regret opening Store #2? Ignore any costs associated with launching the 2nd store