Use the Information Below to Answer the Following Questions

question 53

Multiple Choice

Use the information below to answer the following questions.
Fact 6.5.1 Hollywood: Organized Crime Hits the Movies
The Mexican army seized 1,180 disc burners and 3.14 million copies of movies and TV shows from 23 warehouses in a move to fight piracy that costs Hollywood about $590 million a year.
Source: Bloomberg, Businessweek, April 7, 2011
Assume that the marginal cost of producing a DVD (legal or illegal) is a constant $3 and that legal DVDs bear an additional marginal cost of $5 each in royalty payments to film studios.
-Refer to Fact 6.5.1. With no penalty on buyers, if a penalty for breaking the law is imposed on sellers at more than $5 a disc, the equilibrium price of an illegal disc

• A)rises and the quantity sold decreases.
• B)rises and the quantity sold increases.
• C)falls below $3 and the quantity sold decreases.
• D)rises to a price between $3 and $8 and the equilibrium quantity does not change.
• E)falls below $3 and the quantity sold increases.

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Definitions:

Net Income

The profit remaining after all costs, expenses, and taxes have been subtracted from total revenue.

Allowances

Funds set aside or discounts offered to account for various factors such as potential returns, defective goods, or customer satisfaction initiatives.

Income-Sharing Ratio

An agreed upon proportion used to distribute profits or losses among partners in a partnership.

Limited Liability Company

A corporate model that integrates the flow-through taxation characteristic of partnerships and sole proprietorships with the protective limited liability found in corporations.