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Consider a small steel mill situated alongside a river. The mill operates in a market without environmental regulations and supplies tons of steel (s) according to its private marginal costs, PMC (S) = 32 + 16 . Unfortunately, the production of steel also causes negative externalities in the form of water and local air pollution. Together, these yield marginal damages of MD (S) = 32 + 20. Demand for steel is determined by the marginal benets that it yields, MB (3) = 144 32. How many tons of steel does the mill produce at the unregulated market equilibrium, and what is the resulting price? Now, imagine that we could implement regulation that causes the mill to perfectly internalize the pollution damages. How many tons of steel would be produced at this socially-optimal equilibrium and what is the resulting price? Sketch a graph that characterises this steel market. It does not need to be drawn to scale, but please make sure that you: . represent all curves correctly (i.e. straight, convex, concave). - label the marginal benet (MB), private marginal cost (PMC), marginal damage (MD), and social marginal cost (SMC) curves. Same with any intercept points on the axes. . highlight the equilibria from the previous two questions, as well as the region of deadweight loss. Calculate the deadweight loss that arises due to the negative pollution externalities