1.   Also, riskier firms will have cost curves that are higher to begin with.

2.   But when the average cost curve is falling the Marginal cost curve lies below average cost.

3.   In particular, let the average cost curves for firms in one country lie everywhere below those in the other.

4.   In turn this will move producers back down their Marginal cost curves and alter the net-of-tax price producers require.

5.   Output is allocated among plants so that all are producing at the lowest point on their average cost curves.

6.   Since there are no production externalities, this Marginal private cost curve is also the Marginal social cost curve.

7.   This is reflected in the model by a declining marginal cost curve.

8.   It is an average cost curve for citizens for a constant level of output.