Suppose that the value of a contract to a buyer is a function of her investment in reliance. Specifically, suppose that: i) if the buyer invests $100 in reliance, he or she values the performance $400; ii) if the buyer invests $200 in reliance, he or she values the performance $550; iii) if the buyer invests $300 in reliance, he or she values the performance $700; iv) if the buyer invests $350 in reliance, he or she values the performance $725; v) if the buyer invests $400 in reliance, he or she values the performance $750.

The contract price payable on performance is $75. The buyer anticipates a breach of the contract with a probability .5, in which case her reliance investment is lost (and she does not have to pay the price).

What level of reliance maximizes the buyer's net return from the contract?

Question 3 options:

an investment of $300 is optimal;

an investment of $200 is optimal;

an investment of $350 is optimal;

an investment of $400 is optimal.

an investment of $100 is optimal;