Suppose There Are Two Factories on a River, and Both

question 76

Multiple Choice

Suppose there are two factories on a river, and both need clean water for their production processes. The upstream factory takes in clean water and dumps dirty water back into the river. The downstream firm must clean up the water it gets from the river before using it. In this situation

• A) the private costs of the downstream factory are more than the private costs of the upstream factory, but for both factories private costs and social costs are the same.
• B) the social costs are greater than the private costs for the upstream firm, while the social costs are less than the private costs for the downstream firm.
• C) the upstream factory's private costs are less than its social costs, and its external costs are borne by the downstream factory.
• D) the internal costs of the upstream factory are externalized by the downstream factory, which then passes them on to its customers.

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Definitions:

Equity Theories

A set of theories in psychology and organizational behavior that focus on the principles of fairness and justice in social relationships, particularly in the workplace.

Social Exchange

A theory in social science that proposes human interactions are based on the exchange of goods, services, information, or emotional support, where the goal is to maximize benefits and minimize costs.

Motivation

The driving force that initiates and directs behavior toward achieving a goal.

Theory Y

A management concept that assumes employees are self-motivated, seek responsibility, and can be creative within work conditions.