- Managerial Economics
- Pricing & Output Decisions
optimization of a contract length
Suppose the marginal benefit of writing a contract is $60, independent of its length. Find the optimal contract length when the marginal cost of writing a contract of length L is:
a. MC(L) = 20 + 3L
MC(L) = 50 + 4L.
Instruction: Round your answers to 2 decimal places.
The contract length is optimized when its marginal cost (MC) is ...
The solution uses marginal cost and marginal benefit to find the optimal length of a contract.