The road to E as the correct answer to this multiple-choice question doesn't run through the distinction between predominating and predominant. Rather, you get there through process of elimination—because each of the other options has a disabling flaw (as GMAT views the world of language). Let's walk through the options.
A. all states face similar industrial waste problems, the predominating industries and the regulatory environment of the states obviously determines
The basis for rejection here is the use of determines (a singular verb) with a plural subject ("the predominating industries and the regulatory environment of the states"). A is out.
B. each state faces a similar industrial waste problem, their predominant industries and regulatory environment obviously determine
The basis for rejection here is the mismatch between a singular subject ("each state") and a plural linked possessive pronoun ("their"). GMAT wants you to conclude that the proper possessive pronoun in this version of the sentence is its. B is out.
C. all states face a similar industrial waste problem; their predominating industries and regulatory environment obviously determines
The basis for rejection here is the use of determines (a singular verb) with a plural subject ("their predominating industries and regulatory environment"). C is out.
D. each state faces similar industrial waste problem, the predominant industries and the regulatory environment of each state obviously determines
The basis for rejection here is the use of determines (a singular verb) with a plural subject ("the predominant industries and the regulatory environment of each state"). D is out.
E. all states face similar industrial waste problems, the predominant industries and the regulatory environment of each state obviously determine
This version of the sentence has no subject-verb agreement problem, no pronoun number issue, and no other disqualifying grammatical difficulty. We've got a winner!
As you can see from this analysis, standardized test questions often seek to confuse test takers by setting up false conflicts (here, a supposed conflict between predominating and predominant) to distract readers from what the test creator considers the actual errors in a series of choices. It's a sneaky business—and the standardized test industry puts a lot of effort into doing it effectively.
