Answer the following:

4) Assume there are two towns, A and B. The marginal net benets of water use for each town are: MNBA = 20 0.4% MNBB = 27 3%; a How much water will each town consume when water is not scarce? (3 pts) b Suppose that both towns share a common lake which has a total of 30 units of water available. Calculate the optimal consumption for each town. (5 pts) c Show graphically why the allocation qA : 20 and qB : 10 would not be preferred. Label the deadweight loss that may arise. (5 pts)