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.