Ned owns a farm. At the start of the growing season, Ned plans to plant corn,...
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Ned owns a farm. At the start of the growing season, Ned plans to plant corn, and signs a contract with a local pilot, Rebecca, to cropdust the field to protect it from insects. Ned agrees to pay Rebecca $3,000 after the cropdusting is completed. Corn is fairly resilient: Ned's crops will be worth $33,000 if Rebecca cropdusts the field, and $27,000 if she doesn't. After signing this contract, however, Ned considers whether instead of corn, he should plant something more valuable, but more susceptible to insects: ● If Ned plants wheat instead of corn, his crops will be worth $45,000 if Rebecca cropdusts the field, and $15,000 if she doesn't If Ned plants soybeans instead of corn, his crops will be worth $50,000 if Rebecca cropdusts the field, but worthless if she doesn't Rebecca is reasonably dependable, but there's always a chance that something goes wrong and she doesn't end up cropdusting Ned's field. Planting wheat or soybeans are forms of reliance: they're "investments" that cost more if Rebecca breaches the contract but pays off if she performs. (a) Suppose that with probability two-thirds, Rebecca will be able to cropdust Ned's fields, and with probability one-third she won't. What is the efficient crop for Ned to plant? Suppose that if Rebecca breaches the contract and fails to cropdust Ned's field, she will owe him expectation damages. (b) If Ned plants corn, how much would he benefit from performance of the contract? How much would expectation damages be? (c) If Ned plans wheat, how much would he benefit from performance? How much would expectation damages be? What if Ned plans soybeans? (d) Suppose that since Rebecca expected Ned to plant corn, if she fails to cropdust the field, expectation damages would be limited to what Ned would have lost if he had planted corn. What crop would Ned choose to plant? (e) Now suppose instead that whatever crop Ned plants, if Rebecca fails to cropdust the field, she'll owe Ned damages to cover his actual loss. What crop would he choose to plant? (f) When is it efficient for Rebecca to breach the contract? Under the rule described in (d), is Rebecca likely to breach the contract as often as is efficient, more often, or less often? What about under the rule described in (e)? (g) Under the rule described in (d), would Rebecca invest the efficient amount, more than that, or less than that in maintaining her airplane properly so she'll be likely to be able to perform? What about under the rule described in (e)? Ned owns a farm. At the start of the growing season, Ned plans to plant corn, and signs a contract with a local pilot, Rebecca, to cropdust the field to protect it from insects. Ned agrees to pay Rebecca $3,000 after the cropdusting is completed. Corn is fairly resilient: Ned's crops will be worth $33,000 if Rebecca cropdusts the field, and $27,000 if she doesn't. After signing this contract, however, Ned considers whether instead of corn, he should plant something more valuable, but more susceptible to insects: ● If Ned plants wheat instead of corn, his crops will be worth $45,000 if Rebecca cropdusts the field, and $15,000 if she doesn't If Ned plants soybeans instead of corn, his crops will be worth $50,000 if Rebecca cropdusts the field, but worthless if she doesn't Rebecca is reasonably dependable, but there's always a chance that something goes wrong and she doesn't end up cropdusting Ned's field. Planting wheat or soybeans are forms of reliance: they're "investments" that cost more if Rebecca breaches the contract but pays off if she performs. (a) Suppose that with probability two-thirds, Rebecca will be able to cropdust Ned's fields, and with probability one-third she won't. What is the efficient crop for Ned to plant? Suppose that if Rebecca breaches the contract and fails to cropdust Ned's field, she will owe him expectation damages. (b) If Ned plants corn, how much would he benefit from performance of the contract? How much would expectation damages be? (c) If Ned plans wheat, how much would he benefit from performance? How much would expectation damages be? What if Ned plans soybeans? (d) Suppose that since Rebecca expected Ned to plant corn, if she fails to cropdust the field, expectation damages would be limited to what Ned would have lost if he had planted corn. What crop would Ned choose to plant? (e) Now suppose instead that whatever crop Ned plants, if Rebecca fails to cropdust the field, she'll owe Ned damages to cover his actual loss. What crop would he choose to plant? (f) When is it efficient for Rebecca to breach the contract? Under the rule described in (d), is Rebecca likely to breach the contract as often as is efficient, more often, or less often? What about under the rule described in (e)? (g) Under the rule described in (d), would Rebecca invest the efficient amount, more than that, or less than that in maintaining her airplane properly so she'll be likely to be able to perform? What about under the rule described in (e)?
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To determine the efficient crop for Ned to plant and analyze the benefits and damages in different scenarios lets go through each question step by step a To determine the efficient crop for Ned to pla... View the full answer
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9th edition
Authors: James M. Wahlen, Stephen P. Baginski, Mark Bradshaw
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