Suppose that in the market for paper, demand is P = 100 - Q. The private cost of producing paper is 10 + Q. However, pollution generated by the production process creates a per unit external harm (i.e., a negative externality)equal to 0.5 (i.e., the level of the externality increases with the quantity produced).
i)What is the market equilibrium?
ii)What is the socially optimal quantity of paper that should be produced?

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The Answer of Suppose that in the market for paper, demand is P = 100 - Q. The private cost of producing paper is 10 + Q. However, pollution generated by the production process creates a per unit external harm (i.e., a negative externality)equal to 0.5 (i.e., the level of the externality increases with the quantity produced).
i)What is the market equilibrium?
ii)What is the socially optimal quantity of paper that should be produced?

Suppose That in the Market for Paper, Demand Is P