Refer to the accompanying figure. From this graph, you can infer that paper production

The graph plots quantity in tons of paper per year versus price in dollars per ton. A diagonal line marked D intersects two parallel diagonal lines marked Social M C and Private M C. The diagonal line marked D starts from the top left of the first quadrant at (0, 300) and comes diagonally down and to the right and ends at the bottom right of the first quadrant at (600, 0) passing through the following coordinates: (100, 250), (300, 150) and (500, 50). The diagonal line marked Social M C starts from the bottom left of the first quadrant at (0, 50) and goes diagonally up and to the right and ends on the top right of the first quadrant at (600, 250) passing through the following coordinates: (100, 80), (300, 150) and (500, 215). The diagonal line marked Private M C starts from the bottom left of the first quadrant at (0, 0) and goes diagonally up and to the right and ends on the top right of the first quadrant at (600, 200) passing through the following coordinates: (100, 30), (300, 100) and (500, 165). The diagonal line marked D intersects the diagonal lines Social M C and Private M C at (300, 150) and (370, 120) respectively.

Multiple Choice

• generates no externalities at quantities less than 300 tons per day.
• generates an external cost of $50 per ton per year.
• generates an external cost of $150 per ton per year.
• should be prohibited.