The demand schedule for widgets is P=220-10Q where P is the price and Q is the quantity. The supply (marginal cost) schedule of the firm which produces widgets is MC = 20, and each unit of widgets produced causes additional damage to the environment given by the marginal damages function MD=15Q.

a.Find the both the market output and the efficient output. Explain what you are doing. (10 points)

b.If the firm has the property rights to the environment, how much would the injured parties be willing to pay the firm to bribe it not to produce above the efficient output? (5 points)

c.Finally, if the government were to impose a Pigouvian tax on this firm, what size should the tax be to result in the efficient output, and how much revenue would be raised? (5 points)