G Motors is one of three major auto producers. It is currently producing 6,000 cars a day, and selling them at a price of $10,000 each. Its marketing department tells it that its demand curve depends critically upon whether its competitors match its price changes. If they do not change their prices when G Motors does, schedule l will apply; if they match G Motors price changes, schedule 2 will apply.

Cars Schedule 1 Schedule 2 (in 000s) Price per car Price per car

1 $12,500 $15,000

2 12,000 14,000

3 11,500 13,000

4 11,000 12,000

5 10,500 11,000

6 10,000 10,000

7 9,500 9,000

8 9,000 8,000

9 8,500 7,000

10 8,000 6,000

a) Calculate the marginal revenue (for increments of thousands of cars) associated with each demand schedule.

b) Draw the two demand and MR curves on graph paper. Briefly Discuss.

c) Assume now that, if G Motors raises its price, its competitors will not raise theirs, but that, if it lowers it price, they will match the price cuts. Show the effective demand curve and marginal revenue curve that face G Motors.