Park City Motors is a car dealership that specializes in the sales of sport utility vehicles and station wagons. Due to its reputation for quality and service, College Park Motors has a strong position in the regional market but demand is somewhat sensitive to price. After examining the new models Park City'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 prep labor, and each wagon requires 3 hours of prep labor. The current staff can supply 320 hours of labor.
Park City Motors would like to determine profit maximizing prices for SUVs and wagons.
What is the maximum profit? What should the SUV price and Wagon price be set at? And what is the resulting demand?