Question

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.
If the government intervenes and corrects the externality in the situation described above, we would expect
a) the output of the paper mills to increase.
b) the price of paper from the mills to decrease.
c) production of the hydroelectric power plants to decrease.
d) production in the paper mills to decrease.

Answer 1

Answer: d. Production in the paper mills to decrease

Explanation:

Since they have been mandated to treat the water that is at their disposal, they have to do it. But what happens here is there would be a down time in production as some of the workers who are supposed to be carrying out their duty in the production site would be instructed to first clean the water that they have been instructed, this would lead to production in paper Mills to decrease.