KITCHEN PRO GmbH is a successful German-based multinational provider of high-end integrated kitchen systems. KITCHEN PRO purchases microwaves, ovens, refrigerators etc., and sells them to household consumers worldwide. KITCHEN PRO reports its financial statements in Euro (). In early 2020 KITCHEN PRO is considering an acquisition of a Singapore-based company, ACE, because it wishes to fully control ACEs wafflemaker and frying pan production and sales. KITCHEN PRO wants to include ACEs products in its integrated kitchen offerings. In particular, KITCHEN PRO plans to sell ACEs products exclusively as part of its kitchen systems, i.e. there shall be no external sales of ACEs wafflemakers and frying pans following such an acquisition.

Suppose that HOMEMAKERS SA, a French furniture, kitchen and bath retailer, is one of the largest buyers of KITCHEN PROs integrated kitchen sets in Europe. It is willing to buy 10 additional units of KITCHEN PROs integrated kitchen sets in June 2020, provided that KITCHEN PRO purchases HOMEMAKERS excess inventory of dishwashing machines at a price of 1000 per dishwashing machine. (i) Assume that KITCHEN PRO must source its dishwashing machines from the external market. The external market unit price for similar dishwashers is 900 per dishwashing machine. How much profit will KITCHEN PRO gain for every additional kitchen set it sells to HOMEMAKERS, if it must also purchase one of HOMEMAKERS excess dishwashing machines? Assume that KITCHENPRO always sells its kitchen sets to HOMEMAKERS at a price of 20,000 per kitchen set, achieving a profit margin of 5% of the sales price. Explain. (ii) Now assume that KITCHEN PRO also produces its own dishwashing machines through its subsidiaries in Slovakia. Given it is running close to its capacity limit and its labor has to work overtime, its marginal cost is 950 per dishwashing machine, while the external market price for such dishwashers is 900 per machine. How should KITCHEN PRO calculate and compare HOMEMAKERS offer? Explain.