Problem 8: New Product Innovation. Prior to the introduction of smart phones, the demand for existing cell phones was Q6 2 100 Pa. The cost of producing existing phones was Ce 2 40, and the price was P3 = 70. After the introduction of smart phones, the demand for existing cell phones changed to Q8 2 80 PS, and the price for existing cell phones stayed the same at P8 = 70. The demand for smart phones is Q3 2 200 P3. The price of smart phones is PS 2 100, and the marginal cost of smart phones is 03 = 50. (a) Who benets and who loses from the introduction of smart phones? How much do they gain and lose? What is the change in total surplus from introduction of smart phones? (b) What is the externality of smart phones? Is the net externality positive or negative? (c) Illustrate the problem and your solution on a graph (or two)