Question

suppose the marginal cost of writing a contract of length \\(l\\) is \\(mc(l) = 20 + 3l\\). find the optimal contract length when the marginal benefit of writing a contract is

instruction: enter your responses rounded to two decimal places.

a. \\(mb(l) = 130\\).

b. \\(mb(l) = 210\\).

c. what happens to the optimal contract length when the marginal benefit of writing a contract increases?

• it decreases.
• it increases.
• it stays the same.

Explanation:

Equate marginal benefit and marginal cost

Using the Marginal Benefit and Cost and Optimal Contract Length knowledge points

$$
LATEXBLOCK0
$$

Solve for the second optimal length

Using the Marginal Benefit and Cost and Optimal Contract Length knowledge points

$$
LATEXBLOCK1
$$

Analyze the directional change

Using the Marginal Benefit and Cost knowledge point

$$
LATEXBLOCK2
$$

Answer:

Question a

<blank>36.67</blank>

Question b

<blank>63.33</blank>

Question c

• It decreases.
• It increases. (Correct answer)
• It stays the same.