As we've seen, environmental regulation affects the costs of producers, which affects the equilibrium through the long- and short-run supply curves. Let's look at another way that the paper industry, and its environmental effects, might get smaller.
Figure 9.11 shows a long-run equilibrium with six firms in the industry. It also shows a short-run five-firm supply curve. If the five-firm supply curve stays as it is, what would have to change in this figure for five firms to be the long-run equilibrium number of firms? What might cause this change? Is government regulation the only way that the paper industry might produce less pollution?