Consider the monopoly pricing problem involes a distributor and a manufacturer (both are monopoly). The demand function is

P = 20 - Q:

And the marginal cost of producing is MC = 4, while the marginal cost of distribution is

assmed to be zero.

a). (15 points) If two firms are separate, determine the optimal monopoly pricing of each firm.

b). (10 points) If two firms merge into a single monopoly, determine the optimal pricing and compare the profit level with the total profit of two firms in part (a).

c). (10 points) Compare the social welfare in two scenarios.