Question 1 Problem set [12 points] A chemical plant 'KMee' dumps its waste from production into the river. KMee has the price function of 240 2Q and the marginal cost of 4Q. People living in a house village 'Heaven' nearby the river has incurred the cost to purify the water in the river for use at 2Q (equivalent to the marginal damage from dumping waste into the river). 1.1 1.2 1.3 1.4 1.5 1.6 1.7 Find the private equilibrium price and quantity in the competitive market (Qm, Pm) [2 points] Find the social optimal or efcient production level Q* [1 point] What tax level on waste should be set to achieve the efcient level of production? [1 point] Calculate deadweight loss from negative externality in this case [2 points] Draw a graph to illustrate the results from 1.1 to 1.4 [2 points] Can the Coase Theorem be applied to solve inefciency problem in this case? Please explain the success conditions for the Coase Theorem to support your answer [2 points] If the Coase Theorem does not apply, what government could do to solve the inefficiency problem? Provide two public solutions [2 points]