In this example, a computer company decides to enroll all of its employees in a workshop that aims to improve their efficiency through the development of more advanced skills. The workshop increases the private costs of the computer firm (MPC on the graph above), but the workers' skillset improves which is a benefit to other computer firms that haven't paid for such training and to the community at large. Therefore, as seen on the graph, the MPC for the firm is greater than the overall MSC because the MSC subtracts the benefit to society from the firm's private costs. Here, the firm is producing at quantity Q1 and charges price P1. However, this output level is less than the socially optimal level of output Q* and, between Q1 and Q*, there is a potential welfare gain (illustrated by the yellow triangles) because MSB > MSC.
If the government wants to achieve this welfare gain, they could subsidize firms that decide to provide such training to their employees. By making training cheaper, the firms' private costs decline. This is shown by a rightward shift of the MPC towards MSC. Yet, there is always an opportunity cost when governments use tax revenues to subsidize firms and it is difficult to calculate an appropriate subsidy. The government could also provide its own training, but the same evaluation that can be applied to giving subsidies applies here as well (i.e. costs of training).
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