2. A key factor in analyzing the industry-level effect of an environmental regulation is to study the so-called market-adjustment (or industry output-adjustment}. Suppose that we are looking at the market for gasoline and the market for luxury cars. It is safe to assume that the demand for gasoline is relatively inelastic and the demand for luxury cars is relatively elastic. Let the government introduce industry regulations that raise the marginal cost of production in both industries. For simplicity, assume that the marginal cost rise equally in each industry. a. Draw a graph of the demand curves facing these twb industries. Show on your graph how an increase in marginal cost affects the price and output in each industry. Clearly label your graphs and curves. b. Which industry is likely to experience a larger market adjustment [or output adjustment}? Explain your answer. c. 1What are the oonsequences or costs of this market adjustment? Explain these costs. 3. Suppose that the Marginal Abatement Cast function and the Marginal Damage function for an industry are given as follows: MC = H - [128 MD = {133 For simplicity here. we are asSuming that they are linear. Hint: remember from basic algebra how to calculate the area ofa triangle... A = [H2}>