The supply of paper is described by the following equation:
Q s = 5,000P
where Qs is tons supplied per year and P is the price per ton. The demand is described by
Q D = 300,000 – 1,000P
where Q D is tons demanded per year. Because of the pollution associated with paper
production, marginal external costs of $30 are associated with each ton of paper. a. Assuming
that paper is sold in a competitive market, what is the market price? b.How many tons of paper will be produced per year at that price? c.What is the efficient annual output of paper?
The paper industry plays a crucial role in our economy and daily lives, but it is also associated with environmental concerns due to pollution. To understand the dynamics of the paper market and its efficient output, we will explore the supply and demand equations, external costs, and the concept of market equilibrium.
In a competitive market, the equilibrium price is where the quantity supplied (Qs) equals the quantity demanded (QD). The supply equation, Qs = 5,000P, and the demand equation, QD = 300,000 – 1,000P, help us find this equilibrium price.
Setting Qs equal to QD: 5,000P = 300,000 – 1,000P Solving for P: 6,000P = 300,000 P = $50
Market Price Determination: The equilibrium price of paper in the competitive market is $50 per ton. At this price, the quantity supplied matches the quantity demanded, leading to an efficient allocation of resources.
Quantity Supplied at Equilibrium Price: Substituting the equilibrium price into the supply equation: Qs = 5,000 * $50 = 250,000 tons. Therefore, 250,000 tons of paper will be produced annually at the equilibrium price.
External costs, also known as negative externalities, are the costs imposed on third parties not involved in the transaction. In the case of paper production, pollution is a significant negative externality, and each ton of paper carries a marginal external cost of $30.
Efficient Annual Output Calculation: To find the efficient annual output of paper, we must consider the social cost, which includes both the private cost (supply cost) and the external cost. The efficient output is where the marginal social cost (MSC) equals the marginal private benefit (MPB).
MSC = Marginal Private Cost + Marginal External Cost MSC = 5,000P + $30
MPB is represented by the demand equation: QD = 300,000 – 1,000P
Setting MSC equal to MPB and solving for P: 5,000P + $30 = 300,000 – 1,000P 6,000P = 299,970 P ≈ $49.995
Substituting P back into the demand equation to find the efficient quantity: QD = 300,000 – 1,000 * $49.995 ≈ 250.005 tons
In the competitive paper market, the equilibrium price is $50 per ton, leading to an annual production of 250,000 tons. However, when considering the negative externality of pollution, the efficient annual output is approximately 250.005 tons at an optimal price of around $49.995 per ton. This analysis highlights the importance of internalizing external costs to achieve a more sustainable and socially optimal outcome in the paper industry.
As a renowned provider of the best writing services, we have selected unique features which we offer to our customers as their guarantees that will make your user experience stress-free.
Unlike other companies, our money-back guarantee ensures the safety of our customers' money. For whatever reason, the customer may request a refund; our support team assesses the ground on which the refund is requested and processes it instantly. However, our customers are lucky as they have the least chances to experience this as we are always prepared to serve you with the best.
Plagiarism is the worst academic offense that is highly punishable by all educational institutions. It's for this reason that Peachy Tutors does not condone any plagiarism. We use advanced plagiarism detection software that ensures there are no chances of similarity on your papers.
Sometimes your professor may be a little bit stubborn and needs some changes made on your paper, or you might need some customization done. All at your service, we will work on your revision till you are satisfied with the quality of work. All for Free!
We take our client's confidentiality as our highest priority; thus, we never share our client's information with third parties. Our company uses the standard encryption technology to store data and only uses trusted payment gateways.
Anytime you order your paper with us, be assured of the paper quality. Our tutors are highly skilled in researching and writing quality content that is relevant to the paper instructions and presented professionally. This makes us the best in the industry as our tutors can handle any type of paper despite its complexity.
Recent Comments