Fit Jeans Sdn. Bhd. is an established company in Malaysia that sells denim jeans. In view of the rising labour and materials costs, the manager of Fit Jeans Sdn. Bhd. has decided to raise the price of a pair of jeans from RM80 to RM110. The price increase has reduced the monthly sales drastically from 17,500 to 11,000 pairs of jeans. To rescue the lost sales, Fit Jeans Sdn Bhd offered a RM10 discount voucher for any new purchase. However, there is an additional monthly voucher printing cost of RM1,000 on top of their regular monthly advertising budget of RM5,000. Despite the added voucher costs, 50 percent of the vouchers have been used by consumers in all purchases and the monthly sales have increased to 14,000 pairs of jeans. [Hint: please use mid-point formula, round up to 2 decimal points only]

1. What is the price elasticity of demand of the initial response to the Fit Jeans Sdn. Bhd. price increase?
2. What is the effective price cut stemming from the voucher discount?
3. Considering the price cut in connection with the voucher discount and suppose the price elasticity of demand remains constant, what is Fit Jeans Sdn. Bhd. advertising elasticity?

Discuss whether the actual advertising elasticity differs from your advertising elasticity answer obtained in part iii.