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The supply of paper is given by the following equation:
QS = 5,000P where QS is tons supplied per year and P is price / ton. Demand is expressed by QD = 400,000 - 1,000P where QD is tons demanded per year.
Because of the pollution associated with paper production, there are marginal external costs of $20 associated with each ton of paper. Assume that paper is sold in a competitive market,
• what is the market price?
• At that cost how many tons of paper will be produced every year?
• Elucidate is the efficient yearly output of paper and how can this be achieved?
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