Graphical Analysis, Implications Result 1: Q1>Q Steel firm privately produces" too much"steel, because it does not account for the damages to the fishery Result 2: Fishery's preferred amount is 0 Fishery's damages are minimized at MD=0 Result 3: Q is not the preferred quantity for either party, but is the best compromise between fishery and steel firm Result 4: Socially efficient level entails some pollution Zero pollution is not socially desirable9 Graphical Analysis, Implications • Result 1: Q1>Q* – Steel firm privately produces “too much” steel, because it does not account for the damages to the fishery. • Result 2: Fishery’s preferred amount is 0. – Fishery’s damages are minimized at MD=0. • Result 3: Q* is not the preferred quantity for either party, but is the best compromise between fishery and steel firm. • Result 4: Socially efficient level entails some pollution. – Zero pollution is not socially desirable