2. The supply curve and demand curve for bottled water given by: Supply: Q: ~100+400P Demand: (1: 1150 100P A) Find the competitive equilibrium price and quantity, Pc and 0; say. 3) Suppose that this water was drawn from an underground acquifer by the water bottling company. The production of this bottled water imposed an external cost on other users of the water supply. For example, farmers that drew water from the same acquifer faced higher costs to pump water for irrigation. Suppose that the marginal external cost (MC) imposed by the bottling company was MC = .0010. Derive the allocatively efficient level of bottled water when this cost externality is present. C) Calculate the change in welfare that will occur if the town could move from the competitive output level to the allocatively efcient level. That is, you have to calculate the area of the red triangle on p.3 of the lecture notes "More details for pages 6 and 7 in lecture 5 regarding the losses caused by externalities.\" Also show your answer in a clearly labeled graph. 0) Suppose now that the MC was constant for each unit of output, not increasing with Q and given by MC = .5. Recalculate your answers to parts B and C using this constant MC curve. E) Explain how a Pigouvian tax on bottled water could be used to achieve the allocatively efficient output level. Calculate the tax. (You have to wait until Tuesday's lecture to be able to solve this last part)