Question
Consider a manufacturing firm which needs seek some outside legal help from a law firm. Assume further that the true marginal benefit of this help
Consider a manufacturing firm which needs seek some outside legal help from a law firm. Assume further that the true marginal benefit of this help is given by MB=$400- 2L, where L equals hours per week of legal services. At the same time assume that the marginal cost to the law firm for providing these legal services is constant and equal to $200 per hour. In this context, with the aid of some diagrams, discuss how different assumptions about how well the manufacturing firm understands the marginal benefit of the legal work, and how different assumptions about the relevant market structure, information availability and agency cost will yield different conclusions about the amount of legal services actually provided and also about how the law firm will charge for these services.
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