The widget industry is competitive. Widget factories pollute the neighborhoods where they are located. The following diagram shows the demand for widgets and the private and social marginal cost curves for the industry. There is no possibility of negotiation to reduce pollution. It would cost the neighbors $30 to move elsewhere.

To maximize social gain, should the firm be subject to a Pigou tax?

Transcribed Image Text:

MCprivate $8 $25 51 $15 0 2a 21