High country, inc., produces and sells many recreational products. the company has just opened a new plant to produce a folding camp cot that will be marketed throughout the united states. the following cost and revenue data relate to may, the first month of the plant’s operation: beginning inventory 0 units produced 35,000 units sold 30,000 selling price per unit $ 83 selling and administrative expenses: variable per unit $ 3 fixed (per month) $ 559,000 manufacturing costs: direct materials cost per unit $ 17 direct labor cost per unit $ 6 variable manufacturing overhead cost per unit $ 2 fixed manufacturing overhead cost (per month) $ 630,000 management is anxious to assess the profitability of the new camp cot during the month of may. required: 1. assume that the company uses absorption costing. a. determine the unit product cost. b. prepare an income statement for may. 2. assume that the company uses variable costing. a. determine the unit product cost. b. prepare a contribution format income statement for may.

1. consider a two-firm industry. firm 1 (the incumbent) chooses a level of output qı. firm 2 (the potential entrant) observes qı and then chooses its level of output q2. the demand for the product is p 100 q, where q is the total output sold by the two firms which equals qi +q2. assume that the marginal cost of each firm is zero. a) find the subgame perfect equilibrium levels of qi and q2 keeping in mind that firm 1 chooses qi first and firm 2 observes qi and chooses its q2. find the profits of the two firms-n1 and t2- in the subgame perfect equilibrium. how do these numbers differ from the cournot equilibrium? b) for what level of qi would firm 2 be deterred from entering? would a rational firm 1 have an incentive to choose this level of qi? which entry condition does this market have: blockaded, deterred, or accommodated? now suppose that firm 2 has to incur a fixed cost of entry, f> 0. c) for what values of f will entry be blockaded? d) find out the entry deterring level of q, denoted by q1', a expression for firm l's profit, when entry is deterred, as a function of f. for what values of f would firm 1 use an entry deterring strategy?