If a per- unit tax on a firm's output makes the marginal private cost of production equal to the marginal social cost, we can then say that

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When the per-unit tax on a firm's output makes the marginal private cost of production equal to the marginal social cost, it means that the firm is now paying for the externality it was imposing on society, and the externality has been fully internalized for that firm. This will incentivize the firm to produce at the socially optimal level of output, which is where the marginal social cost (including the tax) equals the marginal social benefit. The firm may face short-term losses initially, but in the long run, it will adjust its output decision to maximize profit while taking into account the tax. The tax revenue can also be used to address the negative externality, such as funding environmental cleanup efforts.

If a Per- Unit Tax on a Firm's Output Makes