. Special Sales Pricing. Chung Company, in Hong Kong, is selling 80,000 units of a product at HK\$10 per unit. The variable cost is HK\$6 per unit, and the annual fixed cost is HK \(\$ 120,000\). A discount house has offered to buy 10,000 additional units of the product which would be slightly modified, but the modifications would not affect production cost. The discount house will pay HK\$7 per unit.

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1. If the two markets can be distinguished, should the order be accepted (assuming capacity exists and has no other use)? Explain.

2. The manager feels that the two markets might not be distinguished and that the lower price would cause regular sales to fall by 5,000 units. Should Chung accept the discount house offer? Explain.

3. If the discount house offer is raised to HK\$9 per unit and competition resulting from the special sale causes the regular price to drop to HK \(\$ 9.50\) to maintain the same regular sales volume, should Chung accept the discount house offer? Explain.