Use the information below to answer the following questions.

Fact 6.5.1Hollywood: 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. With no penalty on buyers, if a penalty for breaking the law is imposed on sellers at more than $5 a disc, the equilibrium price of an illegal disc