Question

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

instruction: enter your responses rounded to two decimal places.

a. \\(mc(l) = 30 + 4l\\)

b. \\(mc(l) = 40 + 5l\\)

c. what happens to the optimal contract length when the marginal cost of writing a contract declines?

Explanation:

Equate marginal benefit and marginal cost for part a

$$
LATEXBLOCK0
$$

Equate marginal benefit and marginal cost for part b

$$
LATEXBLOCK1
$$

Analyze the effect of a decline in marginal cost for part c

$$
LATEXBLOCK2
$$

Answer:

Question a

The optimal contract length is <blank>17.50</blank>.

Question b

The optimal contract length is <blank>12.00</blank>.

Question c

What happens to the optimal contract length when the marginal cost of writing a contract declines?
<blank>It increases</blank>