Reference no: EM13456295

Gas Guzzler 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 GG does, schedule l will apply; if they match GG's price changes, schedule 2 will apply. The schedules are as follows:

                                            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.

c) Assume now that, if GG raises its price, its competitors will not raise theirs, but that, if it lowers it price, they will match the price cuts. On the graph paper, show the effective demand curve and marginal revenue curve that face GG.