Question 1: Carbon tax Consider an electricity network where consumers demand 6,000 MWh. The network has coal-fired power stations with capacity of 4,000 MWh, with a marginal cost of $42 per MWh. Each MWh generated from coal produces 1 ton of CO2. The network also has natural-gas-fired power stations with capacity of 4,000 MWh, and marginal cost of $55 per MWh. For every MWh of electricity generated from gas, 0.5 tons of CO2 is released into the atmosphere. 1. Draw the supply and demand curves for this electricity network. What is the price of electricity? What are the profits for each plant? 2. The government implements a carbon tax of $50 per ton of CO2 emissions. Draw the supply and demand curves for this electricity network. What is the price of electricity? What are the profits for each plant? How much abatement does the carbon tax achieve? 3. Suppose instead that the government implements a carbon tax of $20 per ton of CO2 emissions. What is the price of electricity? What are the profits for each plant? How much abatement does the carbon tax achieve?