Sttle manufacturing produces parts for farm equipment. the managerial accountant oversees several large departments. the tractor part is produced in the assembly department. the variable selling expenses and manufacturing costs for the tractor part are listed below: ayle manufacturing variable selling expenses and manufacturing costs specialty component production report direct materials $800 direct labor $100 variable manufacturing overhead $125 fixed manufacturing overhead (current production level) $200 variable selling expenses (only incurred on sales to outside consumers) $125 the managerial accountant noted that the internal division has excess capacity and could produce the part. there is competition in the marketplace and the current price to purchase the part at an outside firm is $2,500. what is the highest transfer price the managerial accountant should pay to purchase the part from a competitor?

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?