Suppose that a power plant and a dairy are located next to each other. As a byproduct of generating electricity, the power plant produces soot, which imposes a cost on the dairy, as it negatively affects the health of the dairy cows, making them less productive. Suppose that the marginal benefits of soot for the power plant are MB = 10 S, and the marginal costs of soot for the dairy are MC = 6. 1. What is the socially optimal level of soot in this case? Illustrate the optimal level on a graph. 2. Suppose that the dairy has the right to clean air, there are no income effects, and transaction costs are given by T. What is the maximum T such that the dairy and the power plant can still reach the efficient outcome through negotiation? 3. Now suppose that the power plant has the right to pollute. What is the maximum T such that the dairy and the power plant can still reach the efficient outcome through negotiation in this case