After updating resource type and dam path, API is giving webp image which is an optimized one. On page we can load of specific height and width image size as shown above and as part of documentation. 

@VeenaVikraman We can create component specific configuration to provide height and width as shown below:https://<cd_domain>/is/image/test/abc?$Responsive$&fit=stretch&fmt=webp&wid=200&hie=100

Did you try to access or query from project A. If it works, for sure it is permission issue on fragment model and /content/cq:graphql

Follow below linkhttps://medium.com/@toimrank/aem-dispatcher-part-0-a2dcd4771538

@VeenaVikraman There should be any issue with default.any file as by default we allow all files to get cache.. Please check your cache rules files if it is not having any space or typo. Also, please check logs