Managerial Economics & Business Strategy 8th Edition by Michael Baye,Jeff Prince

تمرين 21

Suppose the marginal benefit of writing a contract is $100, independent of its length. Find the optimal contract length when the marginal cost of writing a contract of length L is:
a. MC ( L ) = 30 + 4 L.
b. MC ( L ) = 40 + 5 L.
c. What happens to the optimal contract length when the marginal cost of writing a contract declines?