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Many paper mills produce paper which they sell in the paper market. The mills' market- level marginal cost of paper production is MC =
Many paper mills produce paper which they sell in the paper market. The mills' market- level marginal cost of paper production is MC = 1000 + 2Q. Pollution created by the paper-making process creates external costs of $400 per unit of paper produced, giving social marginal costs of MCs = 1400 + 2Q. The marginal benefits consumers derive from using paper are MB = 3600 - 20. a. On the axes provided below, graph private and social marginal benefits and marginal costs (MBP, MB, MCp, and MCs). Label thoroughly. b. Calculate the socially efficient allocation of the product. Label it in your graph for part a, and enter its numeric value in the blank below. Show your work. To receive marks, you must show work that leads to the answer you provide. c. In your graph for part a, mark the privately efficient allocation of the product as Q. d. In your graph for part a, shade in the area representing the change in the total external cost from allocating Qp rather than Q.
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