The passage states that the companies are struggling to remain profitable and yet still asking for regulations which could reduce their revenues. So the answer choice needs to explain how these regulations will, in fact, increase the company's profits. As we do not have enough information to infer a likely reason, we'll go over all the options. This is an Alternative approach.

A. It is unclear how 'residential regulation' ties in to 'approval of neighboring provinces'. No
B. This could be a reason but is relatively weak as it talks about 'future planning / profitability' and not current rewards. Let's keep looking.
C. This is irrelevant; it does not link to profitability at all.
D. How does this bridge the gap between regulation and profitability? No
E. Again, this does not address the gap in the logic.

(B) is the only relevant option and is our answer
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Hi, I was stuck for a long time between option B & E.
Want some help as to how we can eliminate option E?

(E) is irrelevant as it doesn't address the gap in logic between 'the company is struggling with its profitability' and 'the company is pushing for regulations that could limit their revenue'.
What made you struggle with it?
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Hi, DavidTutorexamPAL
I believe my line of reasoning was flawed, i.e. why I was stuck on option E.

POE'd this one.

Dave is spot on - it's extremely weak.

Typically RP question answer choices have a clear choice that allows both items in the paradox to co-exist.
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DavidTutorexamPAL
I agree to what you have said. But i would like to add that the question stem in itself is formulated - read 'if true' - such that 'future planning / profitability' can be talked about. Yes its weak but that's how it is.

It would have been a disaster had the question stem been
'Which of the following best explains the apparent discrepancy above?'
Then certainly it must have talked about present rewards.
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The correct answer is option (B).

Let us first analyze the passage.

Harunia province:
1. Dry climate
2. Fast growing population

Due to 1 and 2, the demand for water is increasing.
2 companies supply water:

1. Both have struggled to meet demand
2. both still remain profitable

Given the increasing demand, we can expect that immediate profitability is not an issue for these companies because the demand is high and the supply is inadequate.

Despite this, these companies are requesting for residential water use regulations which will:
1. Reduce their revenues
2. Restrict their ability in the future to make a profit supplying water

This is a paradox. Why would the two companies push for regulations, if it can impact their profitability?

Thought Process:
What if -
1. The companies are aware of the fact that water is a scarce resource.
2. In the absence of some regulation on residential usage, in the future the companies would run out of water to supply.
3. So even if profits can be made immediately, in the long term, the companies would not have enough water to supply their customers.
4. Thus, in the long term, the companies won't be able to run their business, and may also struggle to make profits.
5. Thus, though profitable in the short term, without regulations, the companies will either run out of business/struggle for profits.

Now let us look at the options and see if any of the options fits our thought process.

A. The companies are planning large water-transportation and irrigation systems that require the approval of neighboring provinces.

It is unclear how residential usage and the entities in this option are related. There are possible use cases where this would make sense. For example, the companies wants to focus its attention and resources on building large transportation and irrigation systems in the whole region (including neighboring provinces), as it may be more profitable (more efficient, larger systems, maybe!), at the expense of residential usage. This can explain the companies' push for regulations. But we cannot be sure as the relationship between residential usage and these other entities is not clear. Hence, not an ideal choice.

B. The companies believe regulation is inevitable and that having it in place now will allow better planning and thus future profitability.

Exactly what we analyzed, albeit in different words. This option simply means that given the scarcity of water (probably), regulation is inevitable. It will be better to sacrifice short term profitability so that companies can plan better and attain long term profitability.

C. Few, if any, Harunian government officials have investments in the companies or serve on their boards of directors.

Irrelevant. There is no clear connection between what this option states and the companies' push for regulation.

D. The companies believe that the population is not likely to continue to grow.

Even if there were true, it does not explain why the companies should then push for regulations now. If the population is not going to grow, then it is even possible that demand may get stabilised and manageable in the future. Then why do the companies have to push for residential usage regulation?

E. Long-term climate projections suggest that greater rainfall will eventually increase the amount of water available.

If this is true, then it may be the case that the companies will have enough water to supply even in the future. Then, it makes no logical sense to push for regulations in usage now. Why go for regulations if supply will not be a problem?

Cheers!

Harunia Province has a relatively dry climate and is attracting a fast-growing population that has put increasing demands on its water supply. The two companies that supply water to the region have struggled to keep up with demand and still remain profitable. Yet now they are asking Harunian authorities to write residential water-use regulations that could reduce their revenues and restrict their future flexibility in supplying water profitably.

The two companies are doing something that goes against the common business sense. Are they seeing some form of loss in the future run while fulfilling the demand of the fast-growing population?

Which of the following would, if true, most logically help explain why the water-supply companies are asking the authorities to regulate residential water use?

A. The companies are planning large water-transportation and irrigation systems that require the approval of neighboring provinces. - The plans to set up the systems that require approval of neighbouring province is no reason to for the companies to ask Harunian authorities to do something that would impact the company's profitability. Reject

B. The companies believe regulation is inevitable and that having it in place now will allow better planning and thus future profitability. - Oh! So the companies are not seeing loss in the attempt to fulfill the demand of the growing population, but instead the company believes that implementing the changes currently will enable future profitability. That can be the reason for companies asking the Harunian authorities to do something that could impact the company's profitability in the short run but gain higher in a long run. Bingo

C. Few, if any, Harunian government officials have investments in the companies or serve on their boards of directors. - Totally irrelevant

D. The companies believe that the population is not likely to continue to grow - Even if they believe that the population is not likely to grow doesn't change the fact that the population is growing (As stated in the premise) and that company's decision could still hamper their profitability. Reject

E. Long-term climate projections suggest that greater rainfall will eventually increase the amount of water available - Oh, does that necessarily mean that this available water will fulfill the increasing demand of Harunia Province. Would the two companies still have to supply? We are not sure. We could say that their struggle to fulfill the demand might decrease. But that doesn't explain why the companies would try to cut down on their profitability by asking Harunia authorities. Reject
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Answer will be B.
The water company ensured that regulation is coming must. So, nothing to go opposite of passing the regulation. Rather it will make long term planning adjusting with the regulation as the area is dry and people are increasing so surely demand for pure supply water will increase in the future.
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Harunia Province has a relatively dry climate and is attracting a fast-growing population that has put increasing demands on its water supply. The two companies that supply water to the region have struggled to keep up with demand and still remain profitable. Yet now they are asking Harunian authorities to write residential water-use regulations that could reduce their revenues and restrict their future flexibility in supplying water profitably.

Which of the following would, if true, most logically help explain why the water-supply companies are asking the authorities to regulate residential water use?

A. The companies are planning large water-transportation and irrigation systems that require the approval of neighboring provinces. X
-If we were to take this as true, the choice begs the question …why would a company prevent themselves from being profitable? It’s entirely possible that companies seek this approval without reducing their revenues.

B. The companies believe regulation is inevitable and that having it in place now will allow better planning and thus future profitability.
Correct. Management is forward thinking and is acting before news drops.

C. Few, if any, Harunian government officials have investments in the companies or serve on their boards of directors. X
-This does not address the concerns about profitability

D. The companies believe that the population is not likely to continue to grow. X
-Even if this were true, why would a company purposely limit its own revenues? Nonsense. Out.

E. Long-term climate projections suggest that greater rainfall will eventually increase the amount of water available. X
-Sidesteps the profitability issue.
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Nice question , although having a good understanding by referring to the given replies , got me a better understanding.