Consider a static model of flow pollution. The pollution damage D as a function of the level of emissions M is 𝐷(𝑀) = 𝑀2 and the pollution benefits B as a function of the level of emissions M are 𝐵(𝑀) = 52𝑀 − 𝑀2 . (a) [5 marks] Draw the marginal benefit and marginal damage function on a diagram. (b) [10 marks] Calculate the unregulated level of emissions MU , the efficient level of emissions M*, and the emission tax μ* that would induce firms to produce M* units of emissions. Show them on the diagram and explain your reasoning. (c) [5 marks] Calculate the level of net loss to the firm caused by the emission tax that guarantees the level of abatement (MU - M* ). Illustrate this loss on the diagram drawn in part (b) and explain what this loss consists of. (d) [5 marks] Calculate the value of the total benefits, damages, and net benefits at the efficient level of emissions M*. (e) [10 marks] The Environmental Protection Agency (EPA) overestimates the marginal benefits from emissions and believes that they are B′(M)=60-2M. Calculate the level of emissions 𝑀̂ that the EPA will believe to be efficient, given the incorrect information about marginal benefits. (f) [10 marks] Calculate the emission tax μ that the EPA will impose, if it believes that B’(M)=60-2M, to achieve emission target 𝑀̂. Illustrate on a diagram. (g) [5 marks] Calculate the actual emission level and the welfare loss due to the fact that the EPA has overestimated marginal benefits from emissions.