1. Use figure 1, which illustrates the market for butane to answer the following three questions. Butane has a private marginal cost of 5 + 2q but each gallon of butane also causes $30 of environmental damage. Social MC Private MC + 30. 55 Private MC -5 +20 39 25 Inverse Demand = 90 - 30 5 10 15 20 25 30 Figure 1: Market for Butane (a) What areas depict the deadweight loss that would result from a perfectly competitive market for butane with no environmental regulation imposed on producers. (b) Now assume that an environmental surcharge (tax) of $30 per gallon is imposed on producers of butane, but also that butane is a monopoly market. What is the deadweight loss that would result from a monopoly butane market with the environmental surcharge?
