Consider a situation where Pineland Forest Products produces plywood. As a byproduct of the plywood manufacturing process. Pineland also produces dangerous emissions of'toxic gases {from
Consider a situation where Pineland Forest Products produces plywood. As a byproduct of the plywood manufacturing process. Pineland also produces dangerous emissions of'toxic gases {from the glue used to bind the plywood together}. Pineland's neighbours experience a negative eatemality from the toxic gases. Suppose that Pineland faces a demand curve given by 0;. = If: 2F and a supply curve {private marginal costs} given by 05 = 2P. The marginal damages caused by the production of plywood is given byQ=EP4. i. Draw and label the demand and supply curves on the graph below. {2 points] ii. Identify and label the market equilibrium for Pineland on the graph above. How many units of plywood does Pineland sell in equilibrium and at what price? {2 points} iii. Draw and label the marginal damages curve on the graph above. {1 point} iv. What is the socially optimal number of units of plywood and the socially optimal price for plywood. {1 point] v. How much should Pineland be taxed per unit of plywood to achieve the socially optimal level of output? [2 points}
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