Question

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

Upper Q Subscript Upper D Baseline equals 155 comma 000 minus 2 comma 000 Upper PQD=155,000−2,000P

and

Upper Q Subscript Upper S Baseline equals 50 comma 000 plus 2 comma 000 Upper PQS=50,000+2,000P

where

QD

is the quantity demanded in 100-pound lots,

QS

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

MEC equals 0.0006 Upper Q Subscript Upper SMEC=0.0006QS.

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.

(Enter

your responses rounded to two decimal

places.)

Without regulation, the price is

$26.2526.25

per 100-pound lot, and the quantity is

102500102500

100-pound lots.

b. Determine the socially efficient price and output of paper.

(Enter

your responses rounded to two decimal

places.)

The socially efficient price is

ans-

per 100-pound lot, and the socially efficient quantity is

ans-

100-pound lots.

Answer #1

a. Under competitive conditions, QD = QS

So, 155,000−2,000P = 50,000+2,000P

So, 2000P + 2000P = 155,000 - 50,000

So, 4000P = 105,000

So, P = 105,000/4000

So, **P = 26.25**

Q = 50,000+2,000P = 50,000+2,000(26.25) = 50,000 + 52,500

So, **Q = 102,500**

b. QS = 50,000+2,000P

So, 2000P = Q - 50,000

So, P = (Q/2000) - (50,000/2000) = 0.0005Q - 25

So, MSC = P + SMEC = 0.0005Q - 25 + 0.0006Q = 0.0011Q - 25

QD = 155,000−2,000P

So, 2000P = 155,000 - Q

So, P = (155,000/2000) - (Q/2000)

So, P = 77.5 - 0.0005Q

At equilibrium, P = MSC

So, 77.5 - 0.0005Q = 0.0011Q - 25

So, 0.0011Q + 0.0005Q = 77.5 + 25

So, 0.0016Q = 102.5

So, Q = 102.5/0.0016

So, **Q = 64,062.5**

P = 77.5 - 0.0005Q = 77.5 - 0.0005(64,062.5) = 77.5 - 32.03125 =
45.47

Thus, **P = 45.47**

The market for paper in a particular region has the supply and
demand curves: QD = 160,000 - 2,000P QS = 40,000 + 2,000P, where Q
is measured in hundred-pound lots, and P is price per hundred-pound
lot. There is currently 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 associated with
the paper production is given by the expression: MEC = 0.0002Q....

The market for paper in a particular region has the supply and
demand curves:
QD = 160,000 - 2,000P
QS = 40,000 + 2,000P,
where Q is measured in hundred-pound lots, and P is price per
hundred-pound lot. There is currently 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
associated with the paper production is given by the expression:...

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