Pigovian fees when a price is charge for pollution, a firm is motivated to cut back on pollution. Economist's A.C. Pegovian, in the early part of 20th century, had suggested placing a price on pollution, to check it. It is known as Pigovian fee. As defined by Kolstad,  "A pigovian fee is an emission fee exactly equal to the aggregate marginal damage caused by the emissions, when evaluated at the effii level of pollution. Efficient level of pollution would be that where the marginal damage suffered by the victim's is equal to the marginal benefits (,that is the marginal saving or the cost not incurred) to the pollution. In the figure Emission is shown on Xanax and marginal damage, marginal saving & tax on the 'Y'  axis.  MS , is the saving to the firm at the margin for emitting pollution. If it cut back on pollution, the firm has to spend thsese amount or incur marginal abatement cost. That amount is saved & hence MS is actually the negative of marginal cost...

what is opportunity cost? since resources are scare society cannot have more of all good at a time. It has to forego one good if it  chooses to have another. The alternative foregone is called the opportunity cost. A piece of land can be used to cultivate rice as well as wheat. If it is decided to use it for production of rice, wheat cannot be cultivated than the opportunity cost of producing rice is the amount of wheat foregone. Similarly if a certain amount of steel is used for production of a car, the same steel cannot be used for the production of machinery for say a textile industry. So here the opportunity cost of the car is the value of the machinery for the textile for the textile industry. so in simple words it is the value of lost opportunity. Actually various factors are used in combination to produce one particular commodity. the factors used for two different products cannot be exactly the same. For example the factors used for wheat and rice and wheat are same such as...