Externality Example The Super Frisbee company producss frisboes in a perfectly competitive industry. Ilowever, Super Frisbee has patented a new production process for making their frisbees. The new process lowers the firm's average cost, meaning their firm alone (although still a price taker) can carn real coonomic profits in the long run. 1) If the market price is $20 per frisbee and the firm's marginal cost is given by MC=0.4q, where q is the daily frisbee production for the firm, how many frisbees will the firm produce? 2) Suppose a goverument study las found that the firm's new process is polluting the air and estimates the social marginal cost of fritsee production by this firm to be SMC=0.5q. Which type of externality does this represent? 3) If the market price is still $20, what is the socially optimal level of production for the firm? 4) What should the rate of a government-imposed excise tax be to bring about this optimal level of production? 5) Graph your results.