A decrease in the marginal benefit arising from a specialized investment will cause the optimal contract length to

Question

Quizplus · Accepted Answer

When the marginal benefit arising from a specialized investment decreases, it means that the value of the investment is decreasing. Thus, it becomes optimal to reduce the length of the contract to avoid incurring further costs. This is because continuing with the same contract length would lead to more costs being incurred than the expected benefits. So, the appropriate decision is for the optimal contract length to decrease. Therefore, the correct option is B.

A Decrease in the Marginal Benefit Arising from a Specialized