Covington Motors sells sport utility vehicles and station wagons in a price sensitive market. Its marketing consultant has rethought the simple demand curves first proposed (in problem 1) and now wants to recognize the interaction of the two markets. This gives rise to a revised pair of demand curves for SUVs and wagons, as shown below.
SUV demand =300-0.014 (SUV price) + 0.003 (wagon price)
Wagon demand = 325-0.018 (wagon Price) + 0.005 (SUV Price)
The dealership unit costs are $17,000 and $14,000 respectfully. Each SUV requires 2 hours of prep labor and each wagon requires 3 hours of prep labor. The current staff can supply 320hrs of labor. Covington Motors wants to maximize its profits from the SUVs and Wagons that it acquires for its stock.
(a) Determine the profit maximizing prices for the SUVs and Wagons. (ignore the fact that the prices may induce fractional demands)
(b) What sales levels will result from the prices in (a)
(c) What is the marginal value of dealer prep labor?
The final objective value should be $711,827