Question: Z-Pizza recently decided to raise its regular on the large pizza from $9.00 to $12.00 following the increase in the cost of labor an raw materials. Unfortunately its sales dropped sharply from 8,100 to 4,500 pizza per month. In an effort to regain its losses, the company ran a coupon promotion featuring $5 of the new regular pizza. Coupon printing and distributing costs totaled $100, and caused a modest increase in the company’s promotion costs by 2,400 per month. The promotion was judged as a success as it proved highly popular with consumers. In the period prior to expiration, coupons were used 40% of all purchases and monthly sales rose to 7,500 pizzas.

A. Calculate the arc elasticity implied by the initial responses to Z-Best’s prices increase.

B. Calculate the effective price reduction resulting from the coupon promotion.

C. In light of this price reduction, and assuming no change in the price elasticity of demand, calculate Z-Bests arc advertising elasticity.

D. Why might the true advertising elasticity differ from that calculated in part (C)?