solve these questions

3 Coase A wildfire company in California owns many transmission lines. The company can invest $d in the maintenance of these transmission lines. Maintenance affects two things. First, more maintenance means that the power company will have fewer shutdowns. Assume that the costs of shutdowns to the company are %, SO that more maintenance reduces the amount of losses to the company. Second, more maintenance means fewer wildfire ignitions, resulting in lower property damages to surrounding lands. Assume that the value of wildfire damage caused by transmission lines is %, so that more maintenance decreases the amount of damage. 1. What is the socially optimal level of maintenance, d? What is the cost of shutdowns? What is the value of wildfire damages? What level of d is chosen by the power company when no one owns the land affected by wildfires? Now what is the cost of the shutdowns? What is the value of wildfire damage? What is the deadweight loss? Suppose now that the power company owns the land near the transmission lines. What level of d will they choose now? Is it optimal? If not, calculate the deadweight loss. Suppose now that Oprah, a private citizen, owns the property around the transmission lines and can costlessly sue the power company for the losses to her property. What level of d will be chosen by the power company? How much will be paid from the power company to Oprah? Suppose now that the courts are imperfect: For every $1 in damage, only 50% of the damage can be recouped in court. So, if the true damage to Oprah is L, the power company will only pay % If Oprah owns the property rights, what level of d will be chosen by the power company? Is it efficient? If not, what is the deadweight loss? 2 Externalities Consider a perfectly competitive electricity market. There are three firms in this market, firms A and B have marginal cost given by MC = 2@, while firm C has marginal cost MC = @Q. Electricity generation is polluting, but not all plants are equally dirty. Firm A produces 5 units of pollution per mwh, firm B produces 15 units, and C produces 30 units. Each unit of pollution has a cost of $2. (For each unit of production, plant A produces externalities valued at 10, plant B produces externalities valued at 30, and plant C generates externalities valued at 60). Demand is given by @ = 400 2P. 1. Find the equation that describes aggregate supply in this market. 2. What are the (unregulated) equilibrium price and quantity in this market? How much does each firm produce? 3. What is the social aggregate marginal cost in this market? 4. What is the socially optimal production level? What is the socially optimal production for each firm? For the next two parts, assume that policy makers attempt to correct this externality by imposing a tax on electricity produc- tion of 40 per mwh. 5. How much electricity is produced in this market? 6. How much does each plant produce? Is this efficient? Why