1) Consider the paper industry. Suppose each paper mill can only produce in a way that...

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1) Consider the paper industry. Suppose each paper mill can only produce in a way that pollutes the air and water. This imposes a negative externality on people living nearby. Denote the market output by Q. Suppose the inverse market demand function for paper is P = 330 - 2Q. There are 30 paper mills in the industry. The marginal private cost of an individual paper mill is MCP(q) = 20 + 2q. The marginal external cost, resulting from the pollution of paper production, is MC² (Q) = 1/1/1 Q. (a) What is the competitive equilibrium? (b) What is the social optimum? (c) Is the competitive equilibrium the same as the social optimum? If not, what is the tax rate that results in the social optimum? 1) Consider the paper industry. Suppose each paper mill can only produce in a way that pollutes the air and water. This imposes a negative externality on people living nearby. Denote the market output by Q. Suppose the inverse market demand function for paper is P = 330 - 2Q. There are 30 paper mills in the industry. The marginal private cost of an individual paper mill is MCP(q) = 20 + 2q. The marginal external cost, resulting from the pollution of paper production, is MC² (Q) = 1/1/1 Q. (a) What is the competitive equilibrium? (b) What is the social optimum? (c) Is the competitive equilibrium the same as the social optimum? If not, what is the tax rate that results in the social optimum?