2. Suppose a monopolist faces a market inverse demand p = 10-Q, and its marginal cost is constant at 4. Assume its fixed cost at zero also generates polluting emission into the environment when producing. The marginal social cost (MSC) associated with pollution is constant at 3.

a) The socially optimal output level taking into account the pollution should equalize marginal utility with marginal production cost (=4) plus marginal social cost (=3). Given this principle, how much is the socially optimal output level?

b) Compare the socially optimal output with the monopoly output. What can you say regarding the monopoly benefit in existence of externality such as pollution?