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Contracts

A contract is an agreement containing legal obligations that are agreed upon by two or more parties. In economics, contracts are a necessary part of the interaction between two economic agents because they provide the terms for agreement. The purpose of such an agreement is to engage in some sort of productive action or for mutual advantage. A contract may be implemented if one party wants to trade their resources for another party’s resources.

Contract law comes into play when contracts are broken between one or more of the parties and/or if there is a party member who does not agree with the contract. Contract law is necessary for free exchange to exist in a market. Without it, voluntary agreements and exchanges in markets would not be able to occur because there would be no guidelines to govern disagreements and problems within the agreement.

The goal of contract law is to minimize the costs of writing contracts and the costs that are caused by inadmissible behaviour from one or more of the parties. Contract theory studies the way economic agents form contractual agreements. Contracts and contract theory are a large component of law and economics because they deal with legal bindings and incentives.

The topic of contracts typically looks at incentives, incomplete contracts, and transaction costs. In microeconomics, contract theory looks at the behaviour of the decision maker and the actions they take to making optimal decisions. In a way, contract agreements are based on the costs and benefits from the perspective of each party. 

Operations Management: Using Operations to Compute

The Big Black Bird Company (BBBC) has a large order for special plastic-lined military uniforms to be used in an urgent military operation. Working the normal two shifts of 40 hours each per week, the BBBC production process usually produces 2,500 uniforms per week at a standard cost of $120 each. Seventy employees work the fi

Call Put Case Study

The put option of Joe Inc. is currently trading at $2.50 while the call option premium is $7.50. Both the put and the call have an exercise price of $25. Joe Inc. stock is currently trading at $32.25 and the risk free rate is 3%. The options will expire in one month. I. An investor applies a protective put strategy by buying

Contract for IT services from CGI Group

The division of a large office services company that makes high-end copiers recently signed a five-year, $25 million contract for IT services from CGI Group, a Canadian information technology company. If you were the manager of the division, how would you justify the long-term nature of your contract with CGI Group?

Price Quotes and Pricing Decisions Applied Problems

Your company, Bright Paints, is one of a dozen companies manufacturing a special reflective paint used for traffic signs. The State Department of Transportation has called for tenders to supply 10,000 gallons of blue reflective paint to be delivered within two months. You can foresee fitting in a production run of the blue paint

Calculating Dell's Profit Increase

Suppose your firm manufactures 3 million hard drives per year specifically for Dell laptop computers. Suppose your average variable cost C=$20/unit, annualized cost of investment to build a hard drive factory I=$30 million, and the market price (bailout market price in the event Dell does not buy) Pm=$22/unit. If Dell agrees to

FED Policies, International Trade, Exchange Rate and Federal Funds Rate

Is it false that the influence that FED policies have on excess reserves makes a difference? Is it true that international trade tends to equalize prices of goods and services around the world? Is it false that an increase in U.S. prices increases the supply of dollars and causes an appreciation in the exchange rate of the

Book Value and Depreciation

Please refer attached file for completer set of problems Straight Line Depreciation Some special handing devices are bought at the beginning of 2003 for $ 14,000. They will be used for 6 years at the end of which they can be sold for $ 2,000. The devices will be depreciated using the Straight Line method. Straight Line

Corporate Profitability and Executive Bonuses

Please help with the following problem. In this example, let's say corporate profitability declined 20 percent from 2008-2009. What performance percentage would you use to trigger executive bonuses for that year? Why? What issues would arise with the hiring and retaining the best managers?

The Principal-Agent Problem

1. Explain several dimensions of the shareholder-principal conflict with manager-agents known as the principal-agent problem. To mitigate agency problems between senior executives & shareholders, should the compensation committee of the board devote more to executive salary & bonus (cash compensation) or more to long-term incent

Effects of Unanticipated Inflation

Evaluate as accurately as you can how each of the following individuals would be affected by unanticipated inflation of 10 percent per year: a. A pensioned railroad worker b. A department store clerk c. A unionized automobile assembly line worker d. A heavily indebted farmer e. A retired business executive whose c

Production Possibilities Curve: Graph and Detailed Analysis

Using a graph and a table use two goods to construct a production possibilities curve. Clearly explain what a variety of different points on the curve mean. What would make the curve expand or contract? Why is efficiency lost at the extremes, as when substantially more of one good and very little of another is produced?

Calculating Cost Per Unit and OEM

Hello, please provide step by step solutions. I have attached two spreadsheets provided to help assist in solving this problem. Thank you! Winkley & White Bob White leaned back and wiped his forehead with his hand. He was the president of the home oven division of Winkley & White, a manufacturer

Assistance programs and benefits

Contrast the varying assistance programs for the poor in the United States, addressing how benefits are allocated, funded, and controlled.

As a manager of the Ponchartrain Yard Art Corporation

As a manager of the Ponchartrain Yard Art Corporation, you have negotiated with several vendors and are ready to sign a two-year contract with Toy Yachts R Us. Under the contract, they will ship to you 5,000 plastic bathtub yachts per month at a price of $4,000 per 1000. You are reading an industry blog and discover an article t

Value of a Forward

A buyer of a forward contract is obligated to pay the delivery price K for a share of the stock at the delivery time T. 1.) What is the value of a forward contract in terms of the current stock price, the interest rate, the delivery time, and the delivery price if the stock does not pay dividends? Use the basic assumptions on

D. Wayans Automotive called C. E. Reeves Automotive Suppliers and ordered a case of windshield wipers for $4,000 with the terms of the contract/order being 3/10, n/30 FOB Shipping Point. The case of wipers were shipped and neither company paid for shipping insurance on the items. Two days later as the wipers were being transported through town the delivery truck was involved in an automobile accident and subsequently caught fire with all the contents inside being destroyed. Upon finding that his wipers were among those in the accident, Wayans called Reeves and demanded that Reeves replace their lost wipers. Which would you say is the correct/legal stance that Reeves could take concerning this sticky situation? Answer A. Reeves is obligated to ship another case of wipers or credit Wayan's account because ownership had not legally changed hands yet. B. Wayans is obligated to compensate the shipper for the loss of their truck as their delivery put them on the route, and subsequent collision course. C. Wayans is out of luck, as ownership of the wipers was transferred when the package was given to the courier. D. Reeve is obligated to ship another cash of wipers because the accident wasn't caused by Wayans.

D. Wayans Automotive called C. E. Reeves Automotive Suppliers and ordered a case of windshield wipers for $4,000 with the terms of the contract/order being 3/10, n/30 FOB Shipping Point. The case of wipers were shipped and neither company paid for shipping insurance on the items. Two days later as the wipers were being trans

Marriage and Full Faith and Credit

Article 4, Section 1 of the Constitution provides that states will respect other states regarding legal rulings within those jurisdictions. However, marriage has become a flashpoint between states, particularly regarding the issue of gay marriage.* To what extent, if any, should states accord full faith and credit to marriages p

Economic Decisions Defined

Essentially what do you think are the changing aspects of economics ( customer technology and competition) of the following industries? a. Telecommunication b. retail merchandising c. higher education d. airline. See the attached file.

Calculate the newspaper's breakeven point in the short run and long run.

You are a newspaper publisher. You are in the middle of a one-year rental contract for your factory that requires you to pay $500,000 per month, and you have contractual labor obligations of $1 million per month that you can't get out of. You also have a marginal printing cost of $.25 per paper as well as a marginal delivery c

Are baseball players paid what they're worth?

University of Texas at Arlington professors Craig A. Depken II and Dennis P. Wilson have studied the pay of baseball players and discovered the following relationship between each play and team revenue (values adjusted for inflation): Play Change in Team Revenue Home run $406,143 Offensive

Finance Review Questions

Question 1. Otel Corporation entered into an agreement with its investment banker to sell 15 million shares of the company's stock with Otel netting $270 million dollars from the offering. The out-of-pocket expenses incurred by the investment banker were $5,000,000. a. What profit or loss would the investment banker

Instructions: a. Discuss the core principle of the standard and whether or not you are in agreement with the proposed standard. b. Discuss how you believe U. S. companies will react to the proposed changes. c. Assume you are working as a Certified Public Accountant. Discuss how you would prepare your clients to adopt the proposed changes to revenue recognition.

Instructions: a. Discuss the core principle of the standard and whether or not you are in agreement with the proposed standard. b. Discuss how you believe U. S. companies will react to the proposed changes. c. Assume you are working as a Certified Public Accountant. Discuss how you would prepare your clients to adopt the prop

Put call parity formula

Please help with the following problem. On June 25, the call premium on a December 25 PHLX contract is 5.42 cents per pound at a strike price of $1.81. The 180-day interest rate is 4.22% in London and 2.45% in New York. If the current spot rate is 1 pound sterling = $1.6720 and the put=call parity holds, what is the put pr

Market structure is assessed.

You have been contracted by an economic consulting firm to determine the economic structure and possible future actions of OPEC, the Organization of Petroleum Exporting Countries. Using the Library, the Internet, and your course materials, find websites that offer this information and answer the following questions (Perloff,

RISK MANAGEMENT 1. Prepare a means-ranges chart using the five journeys on each day as a sample. Find the control limits and state your inferences from this chart. 2. Prepare a 5-point moving-means-ranges chart. Again find the control limits and state your inferences. Describe your inferences in comparison with those from part (1) and explain the advantages and drawbacks of the two kinds of analysis. 3. The airline's legal affairs manager is concerned that this approach will encourage the bus operator to pressurise drivers into driving too quickly in order to keep a high average. She has therefore asked for a control chart that shows how often the average speed has exceeded the proposed upper limit for contractual performance. Prepare an appropriate attributes chart that shows how often, on each day, average speed is excessive according to this definition. State your inferences from this chart. 4. The legal affairs manager has decided that the sample for this control chart should not be the first five journeys on each day, since some samples include journeys made by more than driver. You are now therefore asked to prepare an appropriate attributes chart such that each sample consists of the journeys of each driver. Thus, for example, the first sample is the series of journeys driven by the first driver shown in Exhibit 1. Again state your inferences. 5. Prepare an analysis of process capability, based on the proposed contractual journey speed limits, applying 1) the usual 3-standard deviation convention, 2) the acceptable failure rate that is proposed for the contract. For item (2) you will need to work out how many standard deviations of a normal distribution enclose the appropriate proportion of the population. State your inferences.

I NEED GUIDELINES. 1. Prepare a means-ranges chart using the five journeys on each day as a sample. Find the control limits and state your inferences from this chart. 2. Prepare a 5-point moving-means-ranges chart. Again find the control limits and state your inferences. Describe your inferences in comparison with those fr

Dr Pepper Snapple group

One specialized type of security is called an equity futures. This is a contract that guarantees you a share of a particular company to be delivered to you not today, but sometime in the future, at a price that is determined by the market right now. This price is usually called the futures price of the stock (note - the term is

Bond futures cash&carry arbitrage

Suppose that the price of a bond futures contract that settles in four months is $101 and the price of the underlying bond is $98. The underlying bond has a coupon rate of 9%, par value of $100, and the next coupon payment is to be made in six months. The borrowing rate is 7.2%. If an investor implemented a cash and carry trade,

IRR rule

The Titanic Shipbuilding Company has a noncancelable contract to build a small cargo vessel. Construction involves a cash outlay of $250,000 at the end of each of the next 2 years. At the end of the third year the company will receive payment of $650,000. The company can speed up construction by working an extra shift. In this c