Suppose the demand for five-hundred-sheet packages of
copier paper in the US is **Q _{d}=150-10P**
where Q

A. Suppose **MPC=2.9Q _{s}**, where Q

B. Calculate the market equilibrium.

C. At the
equilibrium calculated in part B, how much did it cost the marginal firm to
produce the last package transacted? How
much was the marginal consumer willing to pay for the paper?

D. Explain: if MPB ≠ MSB or MPC ≠ MSC
then the market equilibrium calculated in part B is socially inefficient. What is meant by social efficiency?

Assume
the use of waterways by paper producing firms kills fish. The dead fish represents an external cost
equal to $2 for every package of paper produced.

E. Illustrate and
calculate the efficient allocation of paper.
Explain why the market misallocates resources if external costs exist.

F. The production
of paper involves the use of trees that otherwise would have been used to
produce houses and boats. Why do we
consider dead fish in the example an external cost of paper production but not
foregone houses and boats?