Suppose a pulp and paper mill emits pollution into a river upstream of a commercial fishing operation.The emissions from the mill damage the fishery by reducing the number of fish that can be caught.The mill benefits from emissions as these are a by-product of pulp and paper production.

Question 11 (3 points) Explain why the pollution level under point (b) is not an efficient outcome. What is the efficient level of pollution? Explain.Question 13 (4 points) Describe two objections that have been raised about the usefulness of the Coase theorem. Question 9 (2 points) Briefly explain why the arguments of Ronald Coase might be relevant in this situation.Question 10 (2 points) The marginal damages to the fishery are given by MD= 6 Q where MD is in $ per unit of pollution and Q is a measure of the units of pollution per month. The marginal benefit of an additional unit of pollution is given as MB = 36 - 60, where MB is in $ per unit of pollution. A graph of the MB and MD curves is given below. 40 35 30 25 $/unit 20 15 10 UT 0 0 1 2 3 4 5 6 Q (emissions per year) - - MD ($/unit) -MB ($/unit) Suppose the property rights belong to the mill, meaning that the mill is permitted to dump its waste into the river. Prior to any negotiations with the fishery, how much pollution you would you expect the mill to emit into the river?Question 12 (5 points) What is the constant per unit payment that the fishery could make to the pulp and paper mill to achieve the efficient level of emissions? Calculate the net gain to the pulp and paper mill and the fishery showing each of the components in the table below. Briefly describe your calculations. Benefits and costs ($) Benefit to fishery from emissions reduction Cost of payment by fishery to mill Net benefit to the fishery Cost to firm from reduced emissions Benefit from payment received Net benefit to the mill Total net benefits