The US EPA has decided to implement a system of fuel efficiency (fuel economy) standards for light-duty vehicles as part of a package of new climate change policies. This policy will mandate an average fuel economy in miles per gallon (MPG) to be attained by all light-duty vehicle manufacturers. The EPA estimates the marginal private cost of fuel economy to be: MC = 0.5 * MPG (hint MPG is Q in prior models) Further, EPA estimates the marginal social benefit (inclusive of the marginal price benefit to drivers from more efficient vehicles, i.e. MSB = MPB + MEB) as MSB = 60 MPG 1.) Graph the market for fuel economy. Based on the estimated MC and MSB above, calculate and plot the efficient level of MPG.

2.) In making their determination in (1) above, EPA used the average demand (marginal private benefit) for fuel economy across the US. The marginal external benefit (MEB) of fuel economy is constant throughout the US. However, it turns out, drivers in some states value fuel economy more highly than others. For instance, in California: MSB = 75 MPG And in Wyoming: MSB = 45 MPG. Calculate and graph the efficient levels of fuel economy for California and Wyoming.

3.) Assuming the EPA policy is a uniform standard set at the level determined in (1) above, calculate the deadweight losses in California and Wyoming under the new national policy (instead of setting MPG at the levels determined in (2) above).