Given the recent problems with air population in major cities, you decide to start selling a product called "perri-air," which is canned air. the project life is 6 years. to start the project, you need to buy equipment today for $30,000. the equipment has a salvage value, which is 5% of the cost. you decide to depreciate the cost of equipment following a 5 year macrs. the project also requires investment in net working capital today for $20,000 and the net working capital grows 10% per year and is fully recovered at the end (i. e. in the last year, the net working capital is zero). you expect that you can sell 10,000 cans the first year and the sales will increase 1,000 per year. the price if canned air is $6 per can. there is a fixed annual cost for production, which is $35,000. suppose the tax rate is 35%, and investors’ required return is 20%. should you invest this project?

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?