12. noisy gains to trade Return to Example18.4 but now assume H = 900,L = 300 and the high input personal costs are cH1 = cH2 = 120.

(a) Determine the optimal contracts and transfer price.

(b) Repeat for the case cH1 = 60. Provide an intuitive explanation for your findings.

(c) For both cases, determine how much the firm would pay to separately observe trade between the divisions. Explain.