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5. Consider a contract between buyer B and Seller S for delivery of a good that S must produce. Suppose that the value of performance
5. Consider a contract between buyer B and Seller S for delivery of a good that S must produce. Suppose that the value of performance to the buyer, V, non-salvageable reliance by the buyer, R, and price, P (payable on delivery) are given by V = $1000 R = 100 P = 650 Suppose that, at the time the contract was made, the cost of production, C, was uncertain. However, when the time of production arrives, it takes one of three values C = {$700, $900, $1100) After observing C, the seller must decide whether to produce and deliver the good or not produce and breach the contract. a. For which values of C (if any) is it efficient to breach the contract? b. For which values of C will the seller breach under expectation damages, under reliance damages? How do your answers compare to (a)
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