Gavin Co. grants all employees two weeks of paid vacation for each full year of employment. Unused vacation time can be accumulated and carried forward to succeeding years and will be paid at the salaries in effect when vacations are taken or when employment is terminated. There was no employee turnover in 2005.Additional information relating to the year ended December 31, 2005 is as follows:Liability for accumulated vacations at December 31, 2004 $35,000Pre-2005 accrued vacations taken from January 1, 2005 to 30 September 2005 (the authorized period for vacations) 20,000Vacations earned for work in 2005 (adjusted to current rates) 30,000Gavin granted a 10% salary increase to all employees on October 1, 2005, its annual salary increase date. For the year ended December 31, 2005, Gavin should report vacation pay expense of .

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?