Given the following functions relating to a factory which produces paint and dumps its waste into a river:MPB = 60 - 0.05Q, MPB is marginal private benefit, andMPC = 0.025Q, MPC is marginal private cost.

1.Sketch the marginal private benefit, and marginal private cost curves . Calculate equilibrium price and quantity assuming perfectly competitive markets and indicate the free-market equilibrium values in the graph.

2.If marginal social cost = MSC = 0.07Q (where the difference between MSC and MC = marginal damage), solve for the socially efficient level of output (Q*).

3.Sketch the marginal social cost curve (on the same graph you sketched above), and calculate the deadweight loss resulting from the externality in your graph.

4.If the government decides to remedy the externality using a Pigouvian tax. Calculate the amount of the tax, and the amount of the tax revenue collected at the socially efficient output level