Suppose that in the market for paper,demand is p = 100 - Q.The private marginal cost is MC^p = 10 + Q.Pollution generated during the production process creates external marginal harm equal to MC^e = Q.What is the socially optimal level of output? A) 20 B) 25 C) 30 D) 45

Question

Quizplus · Accepted Answer

To find the socially optimal level of output, we need to equate the private marginal cost (PMC) with the social marginal cost (SMC), which is the sum of the private marginal cost and the external marginal harm. 
So, SMC = PMC + external marginal harm 
SMC = 10 + Q + Q 
SMC = 10 + 2Q 
Equating SMC with the demand equation: 
10 + 2Q = 100 - Q 
3Q = 90 
Q = 30 
Therefore, the socially optimal level of output is 30.

Suppose That in the Market for Paper,demand Is P =