1. Externalities and Negotiation (12p) Tetrachloroethene (TCE) in aqueous effluent from FirstChem Inc. in Woburn, MA threatens the Aberjona watershed and the town's water supply. Woburn's residents want a safe water supply, and thus value lower TCE concentrations in the groundwater. TCE is vital to FirstChem's production and profits, so the firm values higher TCE concentrations. The table below shows the total value to each party of various groundwater concentrations of TCE (in parts per billion). Assume that TCE concentrations can only be reduced in discrete steps of 1ppm (for instance, from & ppm to 5 ppm) and solve the problem in Excel. TCE Total Value Total Value (ppb) to FirstChem to Woburn (million 5) {million S) 0 0 &0 1 25 50 2 45 40 3 65 30 4 78 20 5 26 10 6 90 0 a) Suppose that, under federal law, TCE concentrations can be as high as 6 ppb. However, the town of Woaoburn seeks to increase its benefits by negotiating an agreement with FirstChem to voluntarily reduce it emissions in exchange for monetary compensation. What is the most Woburn is willing to pay for each reduction of 1ppb? What is the least FirstChem is willing to accept for each reduction of 1pph? What is the expected outcome, in terms of the concentration of TCE? What is the range of the potential transfers (minimum and maximum payment, in million 5)? b) MNow suppose that Woburn selectmen have the legislative power to introduce a town ordinance criminalizing any detectable concentration of TCE. FirstChem responds by approaching the town and negotiating a pollution allowance in exchange for monetary compensation. What is the most FirstChem is willing to pay for each 1ppb increase in the allowance (starting at 0 pph)? What is the least Woburn is willing to accept for each 1ppb increase? What is the expected outcome, in terms of the legal TCE limit set by the town ordinance and agreed to by FirstChem? What is the range of the transfers (minimum and maximum payment, in million $)? c) Look at your answers to (a) and (b). Are the outcomes in terms of TCE concentrations surprising? Why might these outcomes not occur in the real world? Answer in 2-4 sentences