The market for paper in a particular region in the United States is characterized by the following demand and supply curves

Where is the quantity demanded in 100-pound lots, is the quantity supplied in 100-pound lots, and P is the price per 100-pound lot. Currently there is no attempt to regulate the dumping of effluent into streams and rivers by the paper mills. As a result, dumping is widespread. The marginal external cost (MEC) associated with the production of paper is given by the curve.
a. Calculate the output and price of paper if it is produced under competitive conditions and no attempt is made to monitor or regulate the dumping of effluent.
The equilibrium price and output would be where quantity demanded is equal to quantity supplied:
b. Determine the socially efficient price and output of paper.
c. Explain why the answers you calculated in parts a and b differ.

Transcribed Image Text:

160,000-2000P and 40,000 2000P