Follow the instructions below to answer the questions.
12. Hollywood screenwriters negotiate a new agreement with movie producers stipulating that they will receive 10% of the revenue from every rental of a movie they wrote. They have no such agreement for movies shown on on-demand television. a. When the new writers' agreement comes into effect. what will happen in the market for movie rentals that is, will supply or demand shift, and how? And, as a result. how will consumer surplus in the market for movie rentals change? Illustrate with a diagram. Will the writers' agreement be popular with consumers who rent movies? Consumers consider movie rentals and ondemand movies substitutable to some extent. When the new writers' agreement comes into effect. what will happen in the market for on-demand movies that is, will supply or demand shift, and how? And, as a result, how will producer surplus in the market for on-demand movies change? Illustrate with a diagram. Will the writers' agreement be popular with the cable television companies that show on-demand movies? More consumers are shifting their moviewatching preferences from Redbox rentals to streaming services like Netflix and Amazon Prime. What will happen in the market for movie rentals after the shift in movie preferences? How will producer surplus in the market for movie rentals change? Illustrate with a diagram. Use your diagram to explain how the shift to streaming movies will affect movie rental companies and Hollywood screenwriters. 4' Suppose that De Beers is a singleprice monopolist in the diamond market. De Beers has five potential customers: Raquel, Jackie. Jake. Elijah. and Jordan. Each of these customers will buy at most one diamond and only if the price is just equal to. or lower than. their willingness to pay. Raquel's willingness to pay is $400: Jackie's. $300: Jake's, $200; Elijah's, $100; and Jordan's. $0. De Beers's marginal cost per diamond is $100. The result is a demand schedule for diamonds as follows: Prlu of dlalnnnd Quantity of Hollands demanded $500 0 400 1 300 2 200 3 100 4 0 5 Calculate De Beers's total revenue and its marginal revenue. From your calculation, draw the demand curve and the marginal revenue curve. Exptain why De Beers faces a downwardsloping demand curve and why the marginal revenue from an additional diamond sale is less than the price of the diamond. Suppose De Beers currently charges $200 for its diamonds. If it lowers the price to $100. how large is the price effect? How large is the quantity effect? Add the marginal cost curve to your diagram from part a and determine which quantity maximizes De Beers's prot and which price De Beers will Charge. 5. Use the demand schedule for diamonds given in Problem 4. The marginal cost of producing diamonds is constant at $100. There is no xed cost. a. If De Beers charges the monopoly price. how large is the individual consumer surplus that each buyer experiences? Calculate total consumer surplus by summing the individual consumer surpluses. How large is producer surplus? Suppose that upstart Russian and Asian producers enter the market and it becomes perfectly competitive. What is the perfectly competitive price? What quantity will be sold in this perfectly competitive market? At the competitive price and quantity. how large is the consumer surplus that each buyer experiences? How large is total consumer surplus? How large is producer surplus? Compare your answer to part c to your answer to part a. How large is the deadweight loss associated with monopoly in this case
