1. Assume that notebook paper is sold in a perfectly competitive industry. The industry short-run supply curve (MC curve) is P=MC=2Q. The inverse demand curve is P=40-8Q.

Find equilibrium market price and quantity. Suppose that, during production, paper manufacturers had been dumping waste into nearby streams. The external marginal cost is estimated to be $0.50 per ream. Calculate the socially optimal level of output and price for the paper industry.

B. Suppose the government places a $0.50 tax on each ream of paper sold

What price would buyers pay, and what price would sellers receive (net of tax)?

How many reams of paper would be sold?