Consider a coal-fired power plant. Operating in a highly competitive market, the power plant produces electricity, which is good, but in the process, it releases pollutants into the air: These pollutants both directly and indirectly damage human and environmental health, leading to welfare losses. The costs of operating the plant are borne by the plant, but the health effects are external costs, borne by the people living near the plant. The plant's marginal cost of producing electricity is MC=0.4Q. Economists estimate that the cost from its pollutants are EMC=0.5. The market demand for electricity is Q=125−10P. 

1. Find the market equilibrium price and quantity of electricity. 

2. If the plant considers the external marginal costs of its production, what is the equilibrium price and quantity of electricity? 

3. Is electricity being under or overproduced in the market? Explain. 

4. Based on the Coase theorem, do you expect that the plant operators and nearby residents will negotiate to internalize the externality? Explain.