Pollution From Power Plants Suppose that a regulator plans to enact a cap and trade system to regulate carbon emissions (E) from three natural gas power plants. The marginal abatement cost curves for the three plants are as follows: Plant 1: MAC; = 60 E; Plant 2: MAC; =50 Ep > Plant 3: MAC3 =40 E3 1. What level of emissions will each power plant emit in the absence of regulation? Illustrate the unregulated equilibrium on a graph. 2. Suppose that the regulator caps total emissions at E = 90, and allocates E/3 permits to each plant. What would the market price for permits be in this case? Which plants(s) are net sellers of permits? Which plant(s) are net buyers? Illustrate the outcome with cap and trade on a graph. 3. Suppose that marginal damages from carbon emissions are given by MD = 30. Does the regulator's cap of E = 90 lead to an efficient outcome? If not, what cap would the regulator have to set to achieve an efficient outcome