Covington Motors, a car dealership, specializes in the sales of sport utility vehicles (SUVs) and station wagons. Due to its reputation for quality and service, Covington has a strong position in the regional market, but demand is somewhat sensitive to price. After examining the new models, Covington’s marketing consultant has come up with the following demand curves:
SUV demand = 400 – 0.014 * SUV price
Wagon demand = 425 – 0.018 * wagon price
The dealership’s unit costs are $17,000 for SUVs and $14,000 for wagons. Each SUV requires 2 hours of preparation labor, and each wagon requires 3 hours of preparation labor. The current staff can supply 320 hours of labor.
(a) Determine the profit-maximizing prices for SUVs and wagons.
(b) What demand levels will result from the prices in part a?