An upstream paper mill pollutes water used by a downstream water bottling plant,forcing the latter to clean the water it uses.Which of the following is true?
A)Both will over-produce
B)The paper mill will under-produce and the bottling plant will over-produce
C)The paper mill will over-produce and the bottling plant will under-produce
D)Both will under-produce
E)Neither will over-produce or under-produce

Question

Quizplus · Accepted Answer

The paper mill's pollution will cause the downstream water bottling plant to spend additional resources on cleaning the water it uses, which will lead to increased costs and decreased production capacity. Therefore, the paper mill will over-produce since it does not bear the full cost of its pollution, while the bottling plant will under-produce due to the increased cost and lower production capacity.

An Upstream Paper Mill Pollutes Water Used by a Downstream