The market for paper in a particular region in the United States is
characterized by the following demand and supply curves:
\\[
Q_{D}=160,000-2000 P \quad \text { and } \quad Q_{S}=40,000+2000 P
\\]
where \(Q_{D}\) is the quantity demanded in 100 -pound lots, \(Q_{\mathrm{S}}\) is
the quantity supplied in 100 -pound lots, and \(P\) is the price per 100 -pound
lot. Currently there is no attempt to regulate the dumping of effluent into
streams and rivers by the paper mills. As a result, dumping is widespread. The
marginal external cost (MEC) associated with the production of paper is given
by the curve \(\mathrm{MEC}=0.0006 Q_{S}\)
a. Calculate the output and price of paper if it is produced under competitive
conditions and no attempt is made to monitor or regulate the dumping of
effluent.
b. Determine the socially efficient price and output of paper.
c. Explain why the answers you calculated in parts (a) and (b) differ.