The craft beer industry is highly competitive. The industry short-run supply curve is given by P = 1 + 0.5Q, where Q is measured in millions of barrels. The inverse demand for craft beer is P = 10 – Q. 

a. Find the equilibrium market price and quantity of craft beer sold.

b. The brewing process creates an unpleasant aroma that adversely affects the property values of nearby residents. Beer economists estimate these external marginal costs to be EMC = 0.5Q. Calculate the socially optimal level of output and price for craft beer.