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(2) a. Suppose both parties know that the remedy for CMI in case of a breach will be a payment equal to the value of
(2) a. Suppose both parties know that the remedy for CMI in case of a breach will be a payment equal to the value of the unbuilt plant, where that value is determined based on whatever reliance investments CMI might have made (For example, if CMI invested an additional .04 beyond the 3 million it paid Five Cities, then in the event of breach Five Cities would have to pay 3.24 million to CMl that is, return the 3 million it got from CMl plus the .04 that CMl invested in reliance plus .20 million that CMl expected in profit). Under these circumstances, what level of reliance investment would CMI undertake? If the costs turned out to be high, would Five Cities breach or perform? Explain. (2) b. The socially optimal outcome in this question is the same as in question 2, but in this question's scenario the decisions made about how much to invest and whether the plant is built under various circumstances are different from the decisions made in question 2. What causes the socially suboptimal decisions to be made in this scenario
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