The supply of paper is given by the following equation:
QS = 5,000P
where QS is tons supplied per year and P is price per ton. The demand is described 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. Assuming that paper is sold in a competitive market,
• What is the market price?
• How many tons of paper will be produced per year, at that price?
• What is the efficient annual output of paper and how can this be achieved?