Suppose There Are Two Identical Factories on a River

question 125

Multiple Choice

Suppose there are two identical factories on a river. Both require clean water for their production processes. The upstream firm gets clean water from the river and dumps dirty water into the river. The downstream firm must clean the water it gets from the river before it can use the water and later it dumps dirty water into the river. In this situation

• A) the private costs of the two firms are the same since both dump dirty water into the river.
• B) the upstream factory's private costs are lower than its social costs since it passes the costs of the dirty water on to the downstream firm. For the downstream firms, private costs equal social costs.
• C) the private costs of the downstream firm are greater than the private costs of the upstream firm and the social costs are less than the private costs for both firms.
• D) the private costs of the upstream firm are less than its social costs while the social costs of the downstream firm are less than its private costs.

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Definitions:

Clearinghouse Costs

Expenses associated with the operation of a clearinghouse, which facilitates the exchange and settlement of financial or commodity transactions.

Redemption

The act of exchanging something, such as a coupon or voucher, for a product, service, or financial benefit.

Sweepstakes

A type of contest or promotion where prizes are given away at random, often used as a marketing tool to engage consumers.

Contest

A promotional strategy that involves competition with prizes, encouraging engagement and participation from the target audience.