Question
Suppose that the inverse demand for paper is PD = 400 - Q/1000 and inverse supply is PS = Q/4000, where Q is in tons
Suppose that the inverse demand for paper is PD = 400 - Q/1000 and inverse supply is PS = Q/4000, where Q is in tons per year. Furthermore, suppose that the marginal external damage costs associated with the production of paper are $60 per ton. a. Solve for the competitive market equilibrium quantity and price of paper. b. Solve for the efficient quantity of paper. c. Calculate the deadweight loss associated with your competitive equilibrium from part a. d. Explain why a $60 tax per ton of paper placed on suppliers of paper would bring the equilibrium quantity of paper to match the efficient quantity of paper.
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