Suppose a new contracting environment that requires clearing fewer legal hurdles 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.

Question

Quizplus · Accepted Answer

Clearing fewer legal hurdles reduces the marginal cost associated with each additional contract or project. A lower marginal cost makes it more economically feasible to extend contracts for longer periods, as the incremental cost of doing so is reduced. This leads to a longer optimal contract duration.

Suppose a New Contracting Environment That Requires Clearing Fewer Legal