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Consider the production of paper in some town

Marketing

Consider the production of paper in some town. Suppose that the supply of paper is upward-sloping and the demand for paper is downward-sloping. If the production of paper causes a negative externality of $0.75 per ream (because the smell of the paper production process in this town is both strong and horrific) and the conditions outlined by the Coase Theorem do not hold, by how much does the optimal price per ream of paper differ from the market price per ream of paper?

a. The optimal price is lower than the market price, but by less than $0.75.

b. The optimal price is exactly $0.75 lower than the market price.

c. The optimal price is more than $0.75 higher than the market price.

d. There's not enough information to tell.

e. The optimal price is exactly $0.75 higher than the market price.

f. The optimal price is more than $0.75 lower than the market price.

g. The optimal price equals the market price.

h. The optimal price is higher than the market price. but by less than $0.75.

Option 1

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