Warner Home Entertainment sold the Harry Potter and the Prisoner of Azkaban two-DVD movie set in China for about $3, which was only one-fifth the U.S. price, and sold about 100,000 units. The price was extremely low in China because Chinese consumers are less wealthy and because (lowerquality) pirated versions were available in China for 72¢–$1.20, compared to the roughly $3 required to purchase the legal version (Jin Baicheng, “Powerful Ally Joins Government in War on Piracy,” China Daily, March 11, 2005, 13). Assuming a marginal cost of $1, what is the Chinese elasticity of demand?

Derive the demand function for China and illustrate Warner’s policy in China using a figure similar to panel a in Figure 12.3. M