Question
A signed a contract with B to buy a machine at a price of $920. Assume that A's value for the machine is $1000. At
A signed a contract with B to buy a machine at a price of $920. Assume that A's value for the machine is $1000. At the time when the contract is signed, B's cost of making the machine is a random variable subject to the following probability distribution. Realized Cost Probability 1200 0.3 800 0.5 400 0.2 What is the efficient probability that the contract is breached? Suppose that B breached the contract and the court awarded perfect expectation damages to A. B received the payment of $900 from A when the contract was signed. How much should B pay in damages?
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