As the US increased the production of natural gas released from underground shale formations, creating more output of polyethylene, it was expected that makers of plastic products such as plastic trash bags, toys, containers etc., which use polyethylene as a raw material, would benefit from the same as a result of the decrease in the price of natural gas. However, makers of plastic products have instead reported no cost benefit as a result of the increase in the supply of natural gas.

Flowchart:
US increased production of natural gas ---> creating more output of PE ---> It was expected to decrease the cost price of PE to plastic product makers (PPM) who use PE as raw material ---> however, the PPM said there was no cost benefit (conclusion)


A: To discourage people from using plastic products, many countries have started levying heavy taxes on the plastic industry as a measure to increase the cost of production and the resultant price of plastic products.
We are talking about US, so no discussion of polices of other countries is required


B: The price of ethane, a component of natural gas and raw material for polyethylene has decreased due to the increased supply of natural gas.
We are talking about PE, not a component of natural gas. And even if it decreased, then also, the cost price of PE must decrease and benefit the PPM

C: The makers of polyethylene have increased their profit margins and hence are not passing on lower cost benefits to their customers.
If the PE makers increased their profit margin, then they are selling PE at a higher price than before despite getting natural gas at a lower price (than they did before) ---> causing no benefit of PE's price to PPM. Rather they have to purchase PE at maybe a significant or marginal higher price, but higher price definitely.

D: It is predicted that plastic manufacturers will eventually realize cost benefits, once the production of natural gas is further ramped up.
Predictions aren't going to resolve the paradox here.

E: Since the production of natural gas released from shale formation has increased, the demand for plastic products has decreased significantly.
Demand for Plastic products may have decreased, but how are the PPM affected in their cost price of PE?? the relationship in question isn't PPM vs. Public Demand but PE makers Vs PPM.

OA: C

I agree with you, ddg....
Where MPE = Makers of PolyEthylene; MPP = Makers of Plastic Products
MPE sells to MPP sells to Customers(public)

If MPE(makers of polyethylene) decided not to reduce the price of PE's
,despite the cheap source, ofcourse MPP will not get any cost benefit resulting
from the reductions.So, we have zero-cost benefit to makers of plastic Products, MPP.

C does it.