The production of steel in a factory generates a negative externality. A per-unit tax on the factory that equals _________ of steel production will internalize the externality entirely.

To fully internalize the negative externality associated with steel production, the per-unit tax imposed on the factory should equal the marginal external cost of production. Marginal external cost refers to the additional cost imposed on society when one more unit of steel is produced, which is not reflected in the market price.

When the factory faces a tax equivalent to the marginal external cost, it has a financial incentive to reduce its output of steel to a socially optimal level. This is because the factory will take into account not only its production costs but also the external cost that its production imposes on others, leading to a more efficient allocation of resources. By correcting the market outcome, this approach helps ensure that the social costs of steel production are considered, ultimately leading to the desired reduction in negative externalities.