\fc) Why does the marginal social cost curve slope upward at a different rate than the marginal private cost curve? (2 marks). Because the externality increases with production. d) Write down the MSC curve equation. (2 marks). e) Write down the MPC curve equation. (2 marks) 7. Assume that the town citizen's have the right to free air and the factory does not have the right to pollute. That is the citizens' own the property right to free air. Now, in a bargaining scenario answer the following questions: a) Given that it is illegal for the factory to use the robots where will production be without a bargaining agreement? (2 marks). At zero because to bargain they need to distribute property rights. b) The minimum acceptable offer that the citizens' will accept for the factory to pollute? (3marks). c) What is the reservation option of the factory? (3 marks). d) What is the reservation option of the citizens? (3 marks). 8. Now assume that the factory has the right to produce using the robots and the town citizen's do not have the property rights for clean air. There are three policies that can be implemented to reach an efficient outcome. Regulation, Tax and Enforced Compensation. Consider them in turn and answer the following questions with the diagram from above. The firm faces a price of $340 per phone. Regulation a) Where would the government cap production to if it were to regulate the market to reach an efficient outcome? (2 marks). b) What would the factory's loss of profit be (show all calculations). (3 marks). c) What do the town citizens' gain? (2 marks). Taxation d) What is the amount of the Pigouvian tax used to reach a pareto optimal outcome? (2 marks). e) What is the after tax price received by the factory? (2 marks). Enforcing compensation f) Explain how compensation will be paid to the towns' citizens as a collective for their pollution. (3 marks). g) Calculate how much this compensation will be. Show all workings