Pricing with Interdependent Demands 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 the previous exercise) and now wants to recognize the interaction of the two markets.

The dealership's unit costs are $17,000 and $14,000 per unit, respectively. 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. Covington Motors wants to maximize its profits from the SUVs and Wagons that it acquires for its stock.

Determine the profit-maximizing prices for SUVs and Wagons. (Ignore the fact that these prices may induce fractional demands.)

What sales levels will result from the prices in (a)?

What is the marginal value of dealer prep labor?