An industry raises production but contaminates a nearby water source. What should be done while assessing net welfare?

Correct answer: The cost of environmental damage should be deducted

The governing concept is social cost: production can create benefits for consumers and firms while imposing pollution costs on nearby residents and ecosystems. A welfare assessment should therefore consider the net effect, adding the value of useful output but deducting the cost of environmental damage, including health and restoration costs where measurable. Hence option C is correct; A and D overstate benefits, while B misclassifies harm as income.