1. Spud Co. is a dealer in potatoes. Chip Co. makes potato chips. On Monday, Spud and Chip enter into a contract in which Spud agrees to deliver 100 bushels of potatoes to Chip on Friday; Chip agrees to pay Spud $2.00 per bushel.
Spud’s cost of growing and delivering potatoes ? $100.
Chip’s cost of converting potatoes into chips ? $100, $25 of which must be spent on Friday morning before the potatoes are delivered and which cannot be recovered if no potatoes arrive.
If no potatoes arrive on Friday, Chip must wait until Monday to call around to alternative suppliers to purchase potatoes. The price of potatoes on this “spot” market is $3.00 per bushel. The price of potato chips is $4.00 per bushel.  Assume that Chip paid for the potatoes at the time the contract was signed. Just before delivering the potatoes to Chip at noon on Friday, Spud receives a frantic phone call from Babette, the chef at Chez Babette. She has discovered that the potatoes she bought from someone else are rotten and she needs 100 bushels immediately to make her famous vichyssoise (a fancy name for cold potato soup) that weekend. She is willing to pay $5.00 per bushel as she cannot wait till Monday to buy potatoes on the spot market.
Is breach efficient? Under what measures of damages will efficient breach be achieved?

2. You are appointed to lead a committee for Efficient Criminal Justice Expenditures in your county.  There are two proposals before the committee addressing the overall objective of creating an expected punishment, E(punishment), of $2000 for non-violent crimes.  Consider the proposals below and comment specifically on which one you recommend based on cost, equity concerns, and effectiveness.

i.    Staff a police force and criminal justice process so that the joint probability of arrest & conviction is 50% and the penalty is $4000 per offense
ii.    Staff a police force and criminal justice process so that the joint probability of arrest & conviction is 20% and the penalty is $10,000 per offense (note: this proposal cuts the police force in half and reduces the legal/admin staff by a third)

3.  Consider the simple game below; identify the solution to the game.  Provide an alternative solution assuming the players could cooperate and both end up abiding by their agreement.  What would be necessary to enforce a promise between the players?

B
Abide    Abide    Don’t Abide
A        12, 12    0, 15
Don’t Abide    15, 0    10 , 10

4. Sketch a figure like that shown on p. 475 of Cooter and Ulen.  Assume the acquisition of computers by the police increases the force’s efficiency.  How would your figure change?  Now assume criminals acquire computers and they become more elusive.  How would your figure change?

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