LAW and ECONOMICS

Lazy Lil asks Penny Promisor to help her with her studies for an economic course. "Sure," says Penny," I'll rig up a computer program that will do everything for you." "Great, how much?" asks Lil. "$100 should do it" says Penny. "Done," says Lil. Base on this promise, Lil does no work for the term. For a typical Economics course, Lil would usually study 20 hours, and she values her time at $10 an hour (what you would have to pay her not to watch reality television shows). When Penny sits down to create the computer program, she realizes that it will take her 10 hours. Penny can make S30 an hour doing other things. "Might as well breach," says Penny, and proceeds to tell Lil that she will not perform her end of the bargain. (1) If Lil sues Penny for breach of contract, what could and should a court do? (2) What would happen if the program would take Penny only 5 hours to create? (3) What if the court feeling sympathy for Lil awarded her an extra $500 to compensate for her emotional harms? (4) What incentives will these decisions create, ex ante?

Some guides are needed !