Breach of Contract question

1. Fees for breach of contract (30 points) Consider the following situation: There are a seller S and a buyer B. I The value of an indivisible good for the buyer is b. I The seller's production costs are c. I The price agreed upon is P. Suppose c depends on the seller's investments I where c(I) = 5-1. The seller's investment cost is K(I) = 12. The seller faces some uncertainty and might wish to breach the contract with a probability of 50%. The seller's bargaining power is denoted by B. a. State the social welfare function at the moment where the seller decides on their investment level (5 points). I). Determine the seller's Pareto-efcient investment level (5 points). c. State the seller's objective function under pacta sund servanda (specic performance) at the time of investment (5 points). d. Determine the rst order condition for the seller's investment under pacta sund servanda (specific performance). Interpret the condition. (5 points). State the seller's objective function under expectation damages (5 points). Determine the rst order condition for the buyer's investment under expectation damages. Interpret your nding (5 points). 1"\