The Production of Toilet Paper in a Perfectly Competitive Market

question 15

Essay

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.
a. Solve for the market equilibrium price and quantity.
b. If the production of toilet paper causes an external marginal cost of 50 cents per 4-pack, what are the socially optimal price and quantity of toilet paper?

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