5. (15 %)
Consider a product market in which a private firm faces an inverse demand function \( p(Q) = a - b Q \) and private cost \( \frac{c}{2} Q^2 \). The environmental damage \( D(Q) = \frac{d}{2} Q^2 \), where a, b, c, d > 0.
Assume that each unit of output produces one unit of carbon emissions. Firms engage in Environmental Corporate Social Responsibility (ECSR) by internalizing a fraction \( \gamma \in [0,1] \) of units of carbon emissions. The government can impose a per-unit carbon tax t on output. Derive the equilibrium price and how an increase in the degree of ECSR \( \gamma \) affects the equilibrium price.