Imagine first a drug dealer working in a competitive market with a constraint marginal cost for producing marijuana of $6/oz. Suppose now that government authorities decided to seize the marijuana production whenever they find it. The production of marijuana is seized with a probability of 50%. If the production is seized, there is no other punishment besides loss of the marijuana. What happens to the new equilibrium prices with the new government's policy?
Answer: the equilibrium price increases by $6.