It is the custom for paper mills located alongside the Layzee River to discharge waste products into the river. As a result, operators of hydroelectric power-generating plants downstream along the river
ﬁnd that they must clean up the river's water before it ﬂows through their equipment.
In the situation described above, we would expect an
A) overproduction of paper in the mills.
B) underproduction of paper in the mills.
C) external cost resulting from the production of hydroelectric power.
D) overproduction of power by the hydroelectric plants.

Question

Quizplus · Accepted Answer

The paper mills do not bear the full cost of production because they discharge waste into the river, leading to overproduction of paper as they do not account for the environmental costs.

It Is the Custom for Paper Mills Located Alongside the Layzee