Consider a single manufacturer (M) and a single retailer (R). Suppose the final demand function is Q=20-4p. M produces at AC=MC=2. The game is played out as below: In stage 1, M decides the wholesale...

Consider a single manufacturer (M) and a single retailer (R). Suppose the final demand function is Q=20-4p. M produces at AC=MC=2. The game is played out as below: In stage 1, M decides the wholesale price pw. In stage 2, R decides the retail price pr to consumers.

a. Find the values of pr and pw in equilibrium

b. Suppose M and R vertically integrate. Find the optimal price for the integrated firm