1.There are 3 types of firms. Small firms use a lot of labor to produce their product, medium firms use some labor and some capital, and large firms use a lot of capital to produce the same product. The cost of reducing pollution is based on the amount of capital used in the production process, it costs small firms $10,000 per year to comply with pollution regulations, it cost medium firms $25,000 per year to comply, and it costs larger firms $50,000 per year to comply

1. If the cost to society of one firm violating pollution regulations is $40,000 per year which firms should comply with the regulations?
2. If the regulator has to set a single fine for all firms in this industry and can only catch of all firms that violate the regulations, how high should the fine be for firms that it catches violating the regulations?
3. Why might the regulator want to fine small, medium, and large firms different amounts when it catches them violating the regulations? Explain how regulators practicing will do this?