What is the marginal social cost of milk?

Question 5 [20 marks]The table below shows the demand and supply schedules for milk in Cowland. A subsidy onmilk of $1 per gallon is proposed and the government asks you to examine the effects of thesubsidy.Price(dollars pergallon)Quantity demanded(millions of gallonsper year)Quantity supplied(millions of gallonsper year)1 320 02 240 0Page 17 of 173 160 804 80 1605 0 240a) Draw the demand and supply curves. If there is no subsidy, what is the price of milk and howmany gallons are sold? (5 marks)b) With the subsidy, what is the price that consumers pay? What is the price that sellers receive?How many gallons of milk are sold? (5 marks)c) Assuming no external costs and benefits, what is the efficient level of milk production?(2 marks)d) With the subsidy, what is the marginal social benefit from milk? What is the marginal socialcost of milk? If the subsidy is introduced, will the level of production be efficient? Why or whynot? (8 marks)

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