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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

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

International Finance Module

If you are traveling to Europe in six months and you believe the Euro is going to appreciate against the American dollar, list two ways you could hedge this situation and protect yourself against the appreciation.

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

Outsourcing vs. in House Production

In your opinion, is contracting a government service out to some private firm the best way? Does it make economic sense to contract out some government services?

Assistance programs and benefits

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

Treasury Futures

Suppose you want to hedge a $400 million bond portfolio with a duration of 4.3 years using 10- year Treasury note futures with a duration of 6.7 years, a futures price of 102, and 3 months to expiration. The multiplier on Treasury note futures is $100,000. How many contracts do you buy or sell?

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

Cost Justification

In a 1998 press release, Boeing Commercial Airplane Group (BCAG) announced that it was signing a 10-year contract with distributor Thyssen Inc. - a distributor of raw aluminum - valued at approximately $300 million. The contract reflects Boeing's effort to reduce costs and production bottlenecks resulting from supply shortag

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

Moral Hazard

Suppose the Sri Lanka government awarded contracts to private companies to rebuild the countrys infrastructure damaged by the tsunami and it based its contracts on a percentage of the cost of the reconstruction. Would this constitute a moral hazard? If so, what would the government need to do to prevent such a problem?

Suppose a UAW labor contract with General Dynlamics is being renegotiated. SOme of the many issue on the table include job security, health benefits, and wages. If you are an executive in charge of human resource issues at General Dynamics, would you be better off (a) letting the union bear the expense of crafting a document summarizing its desireed compensation or (b) making the union a take it or leave it offer? explain.

Suppose a UAW labor contract with General Dynlamics is being renegotiated. SOme of the many issue on the table include job security, health benefits, and wages. If you are an executive in charge of human resource issues at General Dynamics, would you be better off (a) letting the union bear the expense of crafting a document sum

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