The correct answer is: Only I and II follow.
The Deputy Mayor of city Z has proposed to install a plant of mineral water and to supply citizen’s mineral water bottles at Rs. 6 per litre as against Rs. 10 per litre being sold by local private companies. This means that the Corporation of city Z will be selling mineral water at a loss of Rs. 4 per litre. The Corporation will have to provide for this loss in its budget.
It is not necessarily the case that the local private companies of city Z will have to close their operation. They may be able to reduce their prices to match the Corporation’s prices, or they may be able to find other ways to reduce their costs. However, it is possible that some of the local private companies will not be able to compete with the Corporation and will have to close their operations.
It is also not necessarily the case that the tap water schemes of city Z will have to be stopped. The Corporation may be able to provide both tap water and mineral water at a price that is affordable for most citizens. However, it is possible that some citizens will choose to drink mineral water instead of tap water, which could lead to a decrease in the demand for tap water.
Therefore, only I and II follow.