Question

A chemical-producing firm is located just upstream from an electric power plant. Instead of the more expensive procedure of burying its wastes, the chemical-producing firm begins dumping its waste into the stream. This causes increased variable costs for the power plant, which uses water from the stream to cool its turbines. From society's viewpoint, the chemical producer's pollution causes an

a. Overproduction of chemicals and underproduction of electric power.
b. The underproduction of chemicals and overproduction of electric power.
c. Optimal production of chemicals and electric power.
d. Optimal production of electric power and a suboptimal production of chemicals.

Answer 1

The correct answer is:

Overproduction of chemicals and underproduction of electric power. (a)

Step-by-step explanation:

The chemical-producing firm chose a less-expensive procedure of disposing its waste by dumping into the stream, rather than a more expensive method of burying its waste, this leads to a reduction in the variable costs of production, hence increasing the volume of production (overproduction). However, the power plant incurred an increased variable costs, when using the polluted water, leading to an underproduction because the costs that would normally have been used to increase production volume, is used to decontaminate the water source.

Answer 2

Overproduction of chemical and an underproduction of electric power.

Step-by-step explanation:

From society's viewpoint, the chemical producer's pollution leads to overproduction of chemical this is due to the fact that there were not much costs incurred in the production of the chemical because the company decided to use a cheaper means to clear out their chemical waste which was carried out by disposal into the stream rather than the proper and expensive method which involves burying the chemical waste.

The electric power plant will experience an underproduction of electrical power due to an increase in variable cost which is as a result of the pollution of the stream by the chemical factory.