Question #1: Externalities [12 Points] Dunder-Mifflin produces paper. One of the by-products of paper production is paper sludge which seeps into the local river and kills the most forms of aquatic life. (a) In the above scenario the production of paper is an example of what type of externality? [2 Points] (b) Draw a graph showing the externality. Label the axes. Clearly label the following curves: private value curve, private cost curve, social value curve and social cost curve. In your graph, label the market equilibrium as Point "A" and label the socially optimal equilibrium as Point "B". [6 Points] (c) At the market equilibrium is Dunder-Mifflin producing too much or too little paper? Explain your answer. [2 Points] (d) Suggest a policy that could be implemented that would get Dunder-Mifflin to produce the socially optimal amount of paper. [2 Points]