Graphical Analysis: Negative Externalities For simplicity, assume that a steel firm dumps pollution into a river that harms a fishery downstream Competitive markets, firms maximize profits Note that steel firm only care's about its own profits not the fishery Fishery only cares about its profits, not the steel firms5 Graphical Analysis: Negative Externalities • For simplicity, assume that a steel firm dumps pollution into a river that harms a fishery downstream. • Competitive markets, firms maximize profits – Note that steel firm only care’s about its own profits, not the fishery’s – Fishery only cares about its profits, not the steel firm’s