Consider the following information relating to the pulp market.
|
|
Demand
|
|
|
Supply
|
|
|
Output(tonnes/ day)
|
Marginal private benefit
|
Marginal social benefit
|
Output
(tonnes/day)
|
Marginal private cost
|
Marginal social cost
|
|
1
|
$140
|
|
1
|
$50
|
|
|
2
|
$120
|
|
2
|
$60
|
|
|
3
|
$100
|
|
3
|
$70
|
|
|
4
|
$80
|
|
4
|
$80
|
|
|
5
|
$60
|
|
5
|
$90
|
|
a. If this market considers only marginal private benefit and marginal private cost, how much pulp will be produced and at what price will it be sold?
b. Assume that pulp mills provide no external benefits and that each tonne of pulp generates $30 of external costs. Complete the table by entering the data for the columns headed 'Marginal social benefit' and 'Marginal social cost'.
c. What would be the socially optimal quantity of pulp produced and the socially optimal price at which will it be sold?