A plastics factory emits water pollutants into a nearby river. The marginal private cost of producing plastics and the marginal external cost of the pollutants are both constant with respect to the quantity of plastics produced. If the demand for plastics is downward sloping, what happens to the socially optimal level of output and market price if the demand curve for plastics shifts rightward?

A) Optimal price and quantity increase.
B) Optimal price increases, optimal quantity remains unchanged.
C) Optimal price remains unchanged, optimal quantity increases.
D) Optimal price and quantity remain unchanged.

If the demand curve shifts rightward, the market equilibrium quantity will increase, but the equilibrium price may also increase or remain unchanged. However, the socially optimal level of output will increase because the marginal social benefit from producing an additional unit of plastics exceeds the marginal external cost of the pollutants. As a result, the socially optimal quantity will be higher than the market equilibrium quantity. Therefore, the socially optimal quantity will increase if the demand curve shifts rightward, but the socially optimal price may be unchanged or even lower than the market equilibrium price. Thus, the answer is (C) Optimal price remains unchanged, optimal quantity increases.