1. Suppose Al hires Joe to build him a house. At the time they signed the...

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General Management

1. Suppose Al hires Joe to build him a house. At the time theysigned the contract, Al valued the house at $500,000, it would costJoe $200,000 to build the house, and they agree on a price of$300,000. After the contract is signed (but before any moneychanges hands), Joe’s costs go up to $350,000, and Joe considersbreaching the contract.

a. Would Joe’s breach be efficient overall? Why or why not? Whatwould expectation damages be (the number)?
b. Assuming he would have to pay expectation damages if hebreached, describe Joe’s decision (with numbers) between performingthe contract and breaching. Would his decision be efficientoverall, and why or why not?
c. How high would Joe’s costs have to go to make him prefer tobreach (and pay expectation damages) rather than perform thecontract? Would this be an efficient breach? e. What would happenbetween Al and Joe if the judge ordered specific performance? Wouldthis outcome be efficient, and why or why not?

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3.8 Ratings (621 Votes)

ans a The breach is not efficient because Al values the house at 500000 and by performing the contract he gets a surplus of 200000 500000300000 The amount lost by Joe by performing the contract is 50000 350000300000 The surplus lost by Al due to breach of the contract is larger than the loss for Joe by performing the contract So although the breach of See Answer

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