Suppose that a change in production technology requires less specialized investments. New optimal contracts should be:...
Suppose that a change in production technology requires less specialized investments. New optimal contracts should be:
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shorter term to increase marginal benefits.
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longer term to increase marginal benefits.
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unaffected if the exchange is relationship specific.
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longer term, but marginal benefits will decrease.
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shorter term, but marginal benefit will decrease.
Homework Answers
Option D.
- Given that only few specialized investments are required for changes in production technology.
- This will cause the new optimal contracts to be made for shorter term as more changes can occur in the production technology in future.
- But very few investments in production technology will decrease the marginal benefits derived from the use of technology.
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