Suppose the marginal cost of writing a contract of length L is MC (L) = 20 +

Question:

Suppose the marginal cost of writing a contract of length L is MC (L) = 20 + 5L. Find the optimal contract length when the marginal benefit of writing a contract is:

a. MB (L) = 120.

b. MB (L) = 180.

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

Fantastic news! We've Found the answer you've been seeking!

Step by Step Answer:

Related Book For book-img-for-question

Managerial Economics and Business Strategy

ISBN: 978-0073523224

8th edition

Authors: Michael Baye, Jeff Prince

See More Books

Question Posted: Apr 18, 2014 09:03 AM

See More Questions

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....
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 +...
Suppose a bank estimates that the marginal cost of raising loanable funds to make a $10 million loan to one of its corporate customers is 4 percent, its nonfunds operating costs to evaluate and offer...
A 300-cm-long piece of straight wire is aligned vertically along the z-axis. The wire carries a downward current of 6.00 A. There is a 2.00-T magnetic field in the negative x-direction surrounding...
American General offers a 7-year ordinary annuity with a guaranteed rate of 6.35% compounded annually. How much should you pay for one of these annuities if you want to receive payments of $10,000...
Uber, a car-for-hire service that connects passengers with private drivers, presently operates in 613 cities worldwide. Lower overheads allow Uber to charge significantly less than a taxi company...
A bar magnet is enclosed by a spherical surface. (a) What is the magnetic flux through the entire surface? (b) If the magnetic flux through the hemisphere closest to the magnet's north pole is...
Capacity and product mix decisions, linear programming Xu Company makes two types of wood doors: standard and deluxe. The doors are manufactured in a plant consisting of three departments: cutting,...
11. A planet is revolving around the sun in an elliptical orbit. The mass of planet is m, angular momentum of planet about sun is L, and length of semi major axis is a and eccentricity are e. Time...
Consider the two computers A and B with the clock cycle times 100 ps and 150 ps respectively for some program. The number of cycles per instruction (CPI) for A and B are 2.0 and 1.0 respectively for...
Describe how a manager who derives satisfaction from both income and shirking allocates a 10- hour day between these activities when paid an annual, fixed salary of $ 100,000. When this same manager...
Andrew has decided to open an online store that sells home and garden products. After searching around, he chooses the software company Initech to pro-vide the software for his website, since their...
Calculate the ratio of the heights to which water and mercury are raised by capillary action in the same glass tube.
Consider each of the three congestion control algorithms that work in units of packets and that start each connection with a congestion window equal to one packet. Assume an ACK is sent for each...
For each bond from A to F, complete the following table based on the information provided and determine: a. The payments generated b. The current yield Current/market Bond A B C D E F value $1,200...
Complete the table through 2002 to 2005 using the information below: Cash A/R Inventory Total Current Assets Land, Plant and Equipment net Other Assets Total Assets A/P Current Portion of LT Debt...
1. Create a new schema (user) with name and password of your choosing. (5 points) 2. At least four (4) tables must be created in the database with the minimum of four (4) columns in each table....
Builtrite is considering the purchase of a new five-year machine worth $90,000. It will cost another $20,000 to install the machine and Builtrite will need to keep an extra $7,000 in inventory on...
Bluegrass Mint Company has a debt-equity ratio of .35. The required return on the companys unlevered equity is 13.1 percent and the pretax cost of the firms debt is 6.4 percent. Sales revenue for the...
You have just begun your summer internship at Omni Instruments. The company supplies sterilized surgical instruments for physicians. To expand sales, Omni is considering paying a commission to its...
Smart World Technologies was a technology company that generated revenue through advertising to users of their free Internet access points. In 1997, Smart World began to use a prospectus to offer...
According to The Wall Street Journal, Mitsubishi Motors recently announced a major restructuring plan in an attempt to reverse declining global sales. Suppose that as part of the restructuring plan...
Hyundai Heavy Industries Co. is one of Koreas largest industrial producers. According to an article in BusinessWeek Online, the company is not only the worlds largest shipbuilder but also...
In the aftermath of a hurricane, an entrepreneur took a one-month leave of absence (without pay) from her $4,000 per month job in order to operate a kiosk that sold fresh drinking water. During the...
What are the four critical areas in which employees should have pride, enjoyment, trust, and benefit to enable high morale?
Your problem statement assignment will include the following: A brief, yet clear and explicit description of the organization. A description of the problem being observed or experienced in the...
What is the main responsibility of prompt engineers?

Suppose the marginal cost of writing a contract of length L is MC (L) = 20 +

Question:

Step by Step Answer:

a When the MB 120 the optimal contract length sets this equal to MC yielding L 20 MCL 2...View the full answer

Managerial Economics and Business Strategy

Students also viewed these Economics questions