Problem Set 3 Due 7 30 60 points total 1 Spud Co is a dealer in potatoes Chip Co makes potato chips On Monday Spud and Chip enter into a contract in which Spud agrees to deliver 100 bushels of potatoes to Chip on Friday Chip agrees to pay Spud 2 00 per bushel Spud s cost of growing and delivering potatoes 100 Chip s cost of converting potatoes into chips 100 25 of which must be spent on Friday morning before the potatoes are delivered and which cannot be recovered if no potatoes arrive If no potatoes arrive on Friday Chip must wait until Monday to call around to alternative suppliers to purchase potatoes The price of potatoes on this spot market is 3 00 per bushel The price of potato chips is 4 00 per bushel Assume that Chip agreed to pay for the potatoes C O D cash on delivery On Thursday Chip is shut down for health code violations and will not be able to reopen for two months while it renovates its production facilities to bring them up to code It therefore has no use for the potatoes to be delivered on Friday If Chip performs by taking delivery of the potatoes they will go to waste If Chip breaches it will refuse to accept delivery Spud as dealer can sell the potatoes to someone else for 1 50 a bushel Is breach efficient Under what measures of damages will efficient breach be achieved Consider restitution reliance and expectation damages 10 Perform Spud Profits 2 100 100 100 Chip Profits 0 2 100 200 Joint surplus 100 Breach Spud profits 1 50 100 100 Damages 50 Chip Profits 0 Damages Joint surplus 50 the one that maximizes the joint outcome is the efficient outcome The breach is efficient because all lead to breach Damages Restitution 0 The down payment given in advance what s paid upfront Reliance 0 resources you spend in expectation that the contract is performed Expectations 50 how to get spud indifferent between the two situations Chips breach decision perform profit 200 breach profit damages 2 Consider this situation based on a real British case X contracted to have a builder construct a swimming pool for him that was to be exactly 2 meters 50 centimeters deep After completion of the pool X discovered that the pool was only 2 meters 30 centimeters deep He sues the builder for specific performance What is the efficient result 10 Compare remedies then decide the best Damages specific performance The damages is awarded to make the owner indifferent to the fact that its not the depth they wanted The typical case in which courts adopt specific performance as the remedy involves the sale of good for which no close substitute exist This includes things such as land houses works of art etc Because this problem involves land than I believe specific performance should be admissible This is the most efficient result because if he were to award damages then the costs would be high due to having to rip up the pool that was built dig deeper and create a whole new pool This not only costs money but a lot of time is involved 3 Question 8 2 and 8 5 10 8 2 The economic theory of contracts would enforce a firm offer to sell a Chevrolet because it would make both parties better off as measured by their own desires without making anyone worse off According to the agency game if no investment is made off the bat than the game is bound to end regardless The economic theory of contracts would enforce the promise of a gift because of the promise of enforceability In the original case the bargaining theory withholds enforcement of this promise because gift promises are not induces by the prospect of gain so they always lack consideration The theory of contract of enforcement is a pareto efficient on the other hand 8 5 Consideration is what the promise gives the promisor to induce the promise Consideration makes the contract enforceable therefore the consideration here is the promise of the gift to the university In this problem the consideration is the first player offering to invest in exchange for the second players promise to cooperate Economically consideration of an intangible asset shook my hand is not feasible 4 Question 8 9 6 When a contract only affects the parties to it liability for perfect expectation damages gives the promisor efficient incentives to perform or breach Damages below the perfect level cause the promisor to breach too often and damages above the perfect level cause the promise to perform too often Reliance is a change in the promises position induced by the promise The chance increases the benefit of performance and the cost of breach which makes the contract riskier If actual incentives for reliance are not efficient than there will be perfect expectation damages for breach 5 Question 9 5 6 Efficiency required that the players choose actions that max the sum of the payoffs a The court should award damages for 2 because that s how much the agreement was for the original contract before breaching b The court should award for the expectation and the reliance therefore the June 1st payment of 4 6 Question 9 20 6 This question is tricky If the family had known about the stone before she sold it than incompetency does not have a role here because the adults her parents are competent and failed to research the true value of the stone However if the jeweler knew and the parents didn t then he is competent and the contract is not void and this is the least costly option Economic rule has to be one competition party Here it s the dealer 7 Question 9 35 6 The law does not generally require an informed person to disclose productive or redistributive information to uniformed people unless its safety information Therefore the defendant should win because the duty to disclose does not pertain to this case 8 Question 9 38 6 A Bilateral Monopoly occurs in an industry where there is only one producer of a good and only one supplier An easement is commonly defined as a nonpossessory interest in another person s land Therefore the phrase bilateral is appropriate due to the sharing of land where no other parties are involved in the transaction