Question 1 (a) Why is eliminating all pollution not necessarily the best solution for society? Can there be too little pollution? Explain your answer using a diagram. (6 - word limit of 100 words) The production of fertilizer involves the release of pollution into the environment. Suppose the inverse demand curve for fertilizer is p = 600 -30, the private marginal cost of manufacturing fertilizer is MCP = 200 + Q, and the marginal external cost due to the emissions in fertilizer manufacture are given by MCE = 20 + 100. (b) Illustrate these curves in a diagram. (2) (c) Solve for the unregulated competitive equilibrium (price and quantity) for fertilizer. (2) (d) What is the marginal social cost of fertilizer production? What is the socially optimal quantity of fertilizer output? What tax per unit of fertilizer results in the socially optimal level of fertilizer production? Explain how the tax works and illustrate it in a diagram. (5) (Marks: 6 + 2 + 2 + 5 =15)