Paper plants often generate negative externalities in the form of odor, groundwater contamination, and air pollution that reduce the quality of life and health of nearby residents. The Glatfelter plant in Spring Grove, PA may be one of the worst air polluters in the nation and was cited by the EPA for another violation a few years ago.

Assume the paper plant faces the following marginal private benefit function (demand) for its product,P = 150 - 0.5Q. The firm's marginal private cost function (MPC = supply) isP = 20 + 2Qwhere P = price per ton and Q = thousands of tons of paper.

Graph the supply and demand functions for paper. As you work through the problem, add to your graph and show your work (partial credit), then once the problem set is over, upload a pic or pdf of your graph to the Assignments folder for PS#1. Use the blanks below to record your answers.

(Note: if your answers are in terms of dollars, use this format: $3.50, include dollar sign and 2 decimal places. For answers in terms of quantity, use this format: 12,000, include a comma for quantities in the thousands and no decimal places.)

(code: 24522)

• 1. Calculate the equilibrium price per ton.

• 2. Calculate the equilibrium quantity.

• 3. Calculate the consumer surplus at the equilibrium conditions.

• 4. Calculate the producer surplus at the equilibrium conditions.

Suppose as a result of the violation, the EPA taxes the firm such that the new supply curve for paper is MPC₂, P = 30 - 2.5Q. Include the new supply in your graph.

• 5. Calculate the new equilibrium price.

• 6. Calculate the new equilibrium quantity.

• 7. Using the two equilibrium points and the midpoint formula, calculate the elasticity of demand.