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. Consider two polluting firms for which the government is considering to tax the firms to address the externality. Suppose that firm As marginal cost
. Consider two polluting firms for which the government is considering to tax the firms to address the externality. Suppose that firm As marginal cost of reduction is less than that of firm B. Further suppose that the marginal damage is always constant (i.e. zero slope). At the optimal tax, what is the relationship between each firms marginal cost of pollution reduction (i.e. one higher than the other or equal)?
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