Question: Suppose that the inverse demand curve for paper is p
Suppose that the inverse demand curve for paper is p = 200 – Q, the private marginal cost (unregulated competitive market supply) is MCp = 80 + Q, and the marginal external harm from emissions is MCx = Q. Determine the unregulated competitive equilibrium and the social optimum (where total surplus is maximized). What specific tax (per unit of output) would achieve the social optimum?
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