The Production of Toilet Paper in a Perfectly Competitive Market

question 19

Multiple Choice

The production of toilet paper in a perfectly competitive market is characterized by the inverse supply curve (marginal cost curve) P = 4Q, where Q is measured in millions of 4-roll packs per month. The inverse demand for toilet paper is P = 10 - 6Q. If the production of toilet paper causes an external marginal cost of 50 cents per 4-pack, the socially optimal price of toilet paper is $____ and the socially optimal quantity of toilet paper is ____ million.

• A) 4; 1
• B) 4.30; 0.95
• C) 4.20; 1.05
• D) 3; 2

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