Margaret manufactures perfume, and her marginal cost of production is always $8. When selling perfume in the market, she faces a demand curve of P = 26 2QD, where Q is measured in bottles of perfume and P is $/bottle. (You can act as if this market is perfectly competitive, even though Margaret is technically the only producer.) Margaret's neighbor James hates the smell of perfume, and the smell from Margaret's production drifts over to James's house. The smell is worse the more Margaret produces, and so the external marginal cost on James for each bottle produced is equal to Q (that is, each additional bottle of perfume produced harms James more than the last bottle produced)