JR sells shirts for £50 and currently produces a revenue

JR sells shirts for £50 and currently produces a revenue of £45,000 per month, while spending 20% of this on advertising. The marketing manager aims to increase sales volume to 1000 units a month. The marginal cost of producing the shirts is £30. The PED for JR’s shirts is –1.5 and the AED is 2.8.

1) Calculate the increase in advertising needed to achieve the target sales volume, assuming price is held constant.

2) Calculate the price cut needed to achieve the target sales volume, assuming advertising is held constant.

3) Calculate the effects of the strategies in a) and b) above on profit compared with the original profit, and advise the marketing manager.