A florist sells bouquet of flowers at a marginal cost of MC = 2 +0.1Q. The inverse demand function for flower bouquet is given by P = 10 - 0.1Q, where P is in dollar per bouquet and Q is number of bouquets produced. The flower bouquets also create a positive externality. The passer by receive external marginal benefits given by MEB = 2 - 0.02Q.

a) Find the quantity of bouquets produced under market arrangement. ( 5 marks)

b) How many bouquets should be produced to maximize the social welfare? ( 5 marks)

c) To achieve the socially optimal output, government can use a price-based intervention. Determine the ideal measure for government to use to achieve this goal. Specify both the type of policy and its magnitude. ( 6 marks)