Figure 4-18
Suppose there are several paper mills producing paper for a market. These mills, located upstream from a fishing village, discharge a large amount of wastewater into the river. The waste material affects the number of fish in the river and the use of the river for recreation and as a public water supply source. Figure 4-18 shows the paper market. Use this Figure to answer the following question(s).
-Refer to Figure 4-18.What is the economically efficient output level?

Question

Figure 4-18
  Suppose there are several paper mills producing paper for a market. These mills, located upstream from a fishing village, discharge a large amount of wastewater into the river. The waste material affects the number of fish in the river and the use of the river for recreation and as a public water supply source. Figure 4-18 shows the paper market. Use this Figure to answer the following question(s).
-Refer to Figure 4-18.What is the economically efficient output level?

Quizplus · Accepted Answer

The economically efficient output level is where the marginal benefit (MB) of production equals the marginal cost (MC) of production. In the given graph, Q₂ is the point where the marginal cost curve intersects the demand curve. At this point, the market is producing the optimal amount of paper that maximizes the economic surplus. Producing more than Q₂ would result in negative externalities on the environment, such as pollution, and reduce the economic surplus. Therefore, the best choice would be to produce only at Q₂, to ensure economic efficiency and protect the environment.

Figure 4-18 Suppose There Are Several Paper Mills Producing Paper