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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. If a penalty is imposed on either the buyer or the seller, and the penalty is the same, then the marginal benefit
A)is higher when the penalty is imposes on the seller.
B)cannot be measured regardless of who pays the penalty.
C)is the same regardless of who pays the penalty.
D)is higher when the penalty is imposed on the buyer.
E)is zero.

Question

Quizplus · Accepted Answer

The marginal benefit is the same regardless of who pays the penalty because the cost of producing a DVD is constant, and thus the penalty would be considered an additional cost. Whether the buyer or the seller bears the penalty, the final cost of the DVD will increase by the same amount, and therefore the marginal benefit will remain unchanged.

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