Little League, Inc. makes two kinds of baseball gloves - the Beginner and the Pro. Below is some relevant information for the past year (unit means one baseball glove): Beginner Pro Number of units sold 65,000 10,000 Sales price per unit $65 $100 Direct materials per unit $10 $20 Direct labor dollars per unit $30 $45 Cutting machine-hours per unit 0.50 1.00 Direct labor-hours per unit 2.00 3.00 Little League is considering the use of activity-based costing, although it currently uses traditional (simple) costing, (meaning it uses just one pool of overhead costs and one allocation base). Little League is doing some analysis at year-end to see which costing method is best. Little League incurred total overhead costs for the year of $940,000, with direct labor-hours as the only allocation base. Using traditional costing, the indirect cost rate is per direct labor-hour. $22.12 $5.875 $2.50 $11.75

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?