Consider production process that requires an upstream firm A to make an input, transfer to a downstream firm B, who then

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Consider production process that requires an upstream firm A tomake an input, transfer to a downstream firm B, who then sells tothe final consumer. One unit of input from A is required for oneunit of final output. The marginal cost of production for firm A is20 per unit. B has zero marginal costs. There are zero fixed costs.The final demand curve for end consumers is P = 200 – q. a. What isthe proft-maximising level of output, the related price and profit,if A and B work together to maximise joint profit. b. Now assumethat each firm acts to maximise its own profit. Firm A sets a priceper unit of input to firm B and, likewise, firm B cares a singleprice to all final consumers (that is, two-part tariffs are notallowed). What is the outcome in this case (prices charged to firmB and final consumers, quantity and profits)? Explain your answerwith the help of a diagram. c. What if the two firms can use atwo-part tariff and firm B has all of the bargaining power? What isthe outcome now? Provide some intuition for your answer. d. Nowassume that the two firms can merge and if they do, the productioncosts to both units fall to zero (MC = 0 for both A and B). Nowassume that the new merged firm is set up so that both A and B arenow separate profit centres. Which outcome is better in terms ofprofit – the merged firm or the outcome outlined in part c? Providesome intuition for your answer.