Suppose the market demand function for newspapers is given by QD=90-3P. In the production of newspaper, several chemicals are released into the atmosphere. The supply function for newspapers is given by QS=2P-30-T, where T represents the external cost created in the production process for newspapers. a. Find the equilibrium price and quantity that would emerge in the private market for newspaper. (HINT: Set T=0) b. An economic consulting firm has determined that the external cost created by the chemicals released during newspaper production is $5 per unit. Find the socially optimal price and quantity of newspapers. (HINT: Set T=5) c. Calculate what the total surplus would be at the private market price and quantity. d. Calculate what the total surplus would be at the socially optimal price and quantity.
Suppose the
a. Find the
b. An economic consulting firm has determined that the external cost created by the chemicals released during newspaper production is $5 per unit. Find the socially optimal price and quantity of newspapers. (HINT: Set T=5)
c. Calculate what the total surplus would be at the private market price and quantity.
d. Calculate what the total surplus would be at the socially optimal price and quantity.
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