A study of ethanol as a transportation fuel reveals that the competitive equilibrium is expected to be at a price of $4 per gallon and a consumption rate of 100 million gallons/day. For a production rate of 10 million gallons/day, the marginal cost is found to be $1 per gallon. Also, at a price of $10 per gallon the demand is 10 million gallons/day. Answer the following questions for this system.

1. Determine the equations for the demand and marginal cost lines.

2. Calculate the consumer and producer surplus for the market equilibrium.

3. It was discovered later that the above information ignored a government subsidy of 50 cents per gallon. How will the demand and marginal cost lines, and the competitive equilibrium, change if this subsidy is removed?