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Assume the demand and supply for an industrial product are given by the equations, Q = -7.5P + 1850 and Q = 5P + 100,

Assume the demand and supply for an industrial product are given by the equations, Q = -7.5P + 1850 and Q = 5P + 100, respectively. A liquid byproduct has been released into the local river. Environmental specialists estimate that the marginal external cost of this runoff is $100 per unit.

  1. Sketch a graph labeling all axes, intercepts, and pertinent intersections.
  2. Calculate the socially efficient quantity of this industrial product and add to the graph.
  3. Label the deadweight loss on the graph and calculate the deadweight loss associated with this product. Also, provide a brief explanation of what the deadweight loss represents.
  4. Recommend a policy solution that would eliminate this market issue.

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