Suppose a New Contracting Environment with an Economic Environment That

question 24

Multiple Choice

Suppose a new contracting environment with an economic environment that looks more uncertain is considered.This new contract will result in:

• A) an increase in the marginal cost and a longer optimal contract.
• B) an increase in the marginal cost and a shorter optimal contract.
• C) a decrease in the marginal cost and a longer optimal contract.
• D) a decrease in the marginal cost and a shorter optimal contract.

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Definitions:

Marginal Revenue

The increase in revenue that results from the sale of one additional unit of output.

Average Variable Cost

The total variable costs divided by the quantity of output produced, representing the variable cost per unit.

Average Total Cost

The total cost of production divided by the quantity of output produced, encompassing both fixed and variable costs.

Total Revenue

The total income a firm receives from selling its products; calculated as the quantity sold multiplied by the price per unit.