Your local dry cleaner, Bleached Brite, is willing to launder shirts at its cost of $1.00 per shirt. The neighbourhood demand for this service is P = 5-0.005Q.

(a) Illustrate and compute the market equilibrium.

(b) Suppose that, for each shirt, Bleached Brite emits chemicals into the local environment that cause $0.25 damage per shirt.

This means the full cost of each shirt is $1.25. Calculate the socially optimal number of shirts to be cleaned.