Post Investment Hold UP

1)Your firm received an RFP (request for proposal) on a wire harness from GM with avoidable fixed costs of $1 million and MC of $1 with expected sales of 1 million units to GM. What's the minimum price that you would be willing to sell each wire harness to GM (i.e. what's the break-even price)?

2) GM agrees to the price in part a), and then hands you with a PO (purchase order) for 0.5 million units. What do you say to them?

3)Describe how this situation could result in post-investment hold up and then propose one way to reduce the risk of hold up for your firm?