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. In the situation described above, we would expect an: 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.

production in the paper mills to decrease

Explanation:

Here is the full 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

the output of the paper mills to increase.

the price of paper from the mills to decrease.

production of the hydroelectric power plants to decrease.

production in the paper mills to decrease

The activities of the paper mill generates negative externality

A good has negative externality if the costs to third parties not involved in production is greater than the benefits. an example of an activity that generates negative externality is pollution. Pollution can be generated at little or no cost, so they are usually overproduced. Government can discourage the production of activities that generate negative externality by taxation. Taxation increases the cost of production and therefore discourages overproduction. Tax levied on externality is known as Pigouvian tax.

Government can regulate the amount of externality produced by placing an upper limit on the amount of negative externality permissible

Actions of the government would limit the output of the paper mill