Reference no: EM13156474
Because of the economic sanctions, "Cast Away Islands" cannot import Hollywood movies or DVDs. EunYoung is a super genius computer engineer in "Cast Away Islands" and she knows how to make computer files (avi. File) of Hollywood movies by hacking into Hollywood productions' system. Once she produces this computer file, people in "Cast Away Islands" can watch the movie without paying and any number of people can watch it at the same time. There are two types of consumers, those who really like Hollywood movies (type A) and those who do not (type B). Their marginal benefits are given by
MBA = 30 - Q for Q<30
MBB = 10 - Q for Q <10
where Q is the number of different computer movie files EunYoung produces. There are 50 type A individuals and 100 type B individuals. For higher numbers of computer movie files, assume marginal benefit is equal to zero. Fixed costs of producing computer movie files at all are $400 (EunYoung needs a special equipment), and the marginal cost of producing a computer movie file is a constant $60/movie. (Note: Ignore international legal issues involved with copyrights)
(a) Calculate the total social marginal benefit function.
(b) What is the socially efficient number of computer movie files?
(c) Assume that EunYoung is operating in a market. How many computer movie files will EunYoung produce?
(d) "Cast Away Islands" government is planning to finance EunYoung's operation and the government proposes a uniform tax (each person pays an equal amount toward the cost of each computer movie file). How many computer movie files type A want? How many computer movie files type B want? Will this proposal make every individual better off than if EunYoung's operation did not exist?
(e) Now suppose that the Type B people band together and refuse to pay their tax. Could this be a rational decision on their part? Explain your answer.