There is a monopolist manufacturer in the wholesale market with a marginal cost at 50, MCM=50, and no fixed cost. There is also a monopolist retailer in the retail market with the retail demand equation: p=250-q. They work separately from each other. Now suppose they want to sign a franchise contract to (1) maximize their joint profit as in the vertical integration case and (2) make sure that manufacturer's profit quadruples the dealer's profit, i.e., M=4R. How to choose the wholesale price w in the franchise contract?

a.

set w=50, and it will make the manufacturer and the retailer share the same marginal cost.

b.

Set w=150 and it will reduce the conflict of interest between the manufacturer and the retailer.

c.

Set w=200 and it will reduce the conflict of interest between the manufacturer and the retailer.

d.

Set w=50, but with the franchise fee f in the contract it can increase the retailer's marginal cost .

e.

None of the other choices are correct.