Sewage treatment and the NIMBY problem

Suppose a small town needs a new water treatment plant to clean up its sewage. The town consists of two neighborhoods which we'll call "H" and "L". The population of H is 10,000 and each resident has a willingness to pay for treating sewage given by P = 75-QH, where QH is the amount of water treated per year. The population of L is 30,000 and each of its residents has a willingness to pay for sewage treatment given by P=25-QL.

1. Derive an equation for the total annual demand for sewage treatment. Suppose that the plant will be able to treat sewage at a marginal cost of $10 per unit; how much sewage would the plant have to handle each year? How much consumer surplus would be received by residents in each neighborhood?
2. OK, now let's consider where the plant should be built. Suppose (!) that people in this town don't like having a sewage treatment plant in their neighborhood. In fact, residents of H are each willing to pay $750 to avoid having the plant in H, and residents of L are each willing to pay $120 to avoid the plant. In which neighborhood should the plant be built? Why? If any compensation is needed to keep this decision from making anyone worse off, calculate how much it should be. Is there any tension between efficiency and equity in this decision? Discuss, and be specific about dollar amount, where possible. Finally, suppose we did the calculation in terms of willingness to accept (W2A) instead of willingness to pay. Moreover, suppose area H's W2A was $750 but area L's was no longer $120. Would the decision have been the same? Discuss.