Suppose two engineering firms, Philly and Candy compete in the South African ready-mix concrete industry. The products of the two firms are differentiated, and each month the two firms set their prices P.

The demand functions Q facing each firm are:

= 50 + 5 = 64 + 2 4

where the subscript P denotes the firm Philly, and the subscript C denotes the firm Candy. Candys marginal cost is R5 per unit and Phillys marginal cost is R4 per unit.

4) Using well annotated graph, plot the above calculated reaction functions and illustrate what happens when Candy`s marginal cost increases.

5) Using well annotated graph, plot the above calculated reaction functions and illustrate what happens when Phillys demand goes up for any given pair of prices for Candy and Philly