QUESTION 4 [7 marks] Two furniture manufacturers (firm 1 and firm 2) in neighbouring towns are hiring qualified cabinetmakers to produce furniture, Each hired cabinetmaker produces revenue for the firm of R210 per day (assume the market for furniture is perfectly competitive so furniture prices are constant). However, the market for qualified cabinetmakers in each town is imperfectly competitive, so that each firm can increase the number of cabinetmakers it employs by increasing the wage it offers. As indicated by the labour supply functions below, there is a degree of competition for cabinetmakers between the two firms: 61 = 2wj - 90 - -We Eg = 2wa - 90 - -WI E, and E, are the respective numbers of workers that firm 1 and firm 2 employ; w, and w, are the wages that firm 1 and firm 2 offer per worker per day. The firms' profit functions are: * = E (210 - wj) 12 = E2 (210 - wz) 4.1 Derive each firm's best response function, It should indicate which wage each firm offers given the wage that the other firm offers. Also draw a graph showing the two firms' best response curves. (5] 4.2 Calculate the Nash equilibrium wages and indicate them on the graph. (2] Answers Q4: 4.1. 4.2