law and econ problem set

1. Adam and Beth entered into a contract for Beth to renovate Adam's house. There is a realization of good luck with probability p and of bad luck with probability 1 - p. Following the realization of this luck, Beth can decide to perform or to breach. If there is good luck and Beth performs, both parties get $100. If there is bad luck and Beth performs, then Adam still gets $100 but Beth receives - $200. If Beth breaches (in either good luck or bad luck), Beth must pay damages of L to Adam (and so Adam's payoff is L and Beth's - L. (a) Draw a game tree representing this situation. (b) If we are under expectation damages, what is L? Briefly explain why this is the case. For the remainder of the question and question (2), assume that L is this number () What is the efficient thing for Beth to do in the case of good luck? Bad luck? (d) What will Beth do in the case of good luck? Bad luck? Is this efficient