Suppose the marginal benefit of writing a contract is $50, independent of its length. Find the optimal contract length when the marginal cost of writing a contract of length L is:
a. MC(L) = 10 + 2L.
b. MC(L) = 5 + 2L.
c. What happens to the optimal contract length when the marginal cost of writing a contract declines?

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November 15, 2011

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