Three hundred paper mills compete in the paper market.The total cost of production (in dollars)for each mill is given by the formula ,where Q^mill indicates the mills annual production in thousands of tons.The marginal external cost of a mill's production (in dollars)is given by the formula Finally,annual market demand (in thousands of tons)is given by the formula Find the competitive price that would prevail without externalities.

Question

Quizplus · Accepted Answer

To find the competitive price that would prevail without externalities, we need to find the equilibrium quantity and price in a situation where there are no external costs imposed on society.

In this case, we can use the market demand equation to find the total quantity demanded by consumers:

QD = 6000 - P

And we can use the individual mill cost equation to find the total quantity supplied by all mills:

QS = Σ(QS1) = Σ(QS1U1P1) = 300(1000P^(1/2))

Setting demand equal to supply, we get:

6000 - P = 300(1000P^(1/2))

Solving for P, we get:

P = $1657.14

Therefore, the competitive price that would prevail without externalities is $1657.14.

Three Hundred Paper Mills Compete in the Paper Market