Final answer:
The optimal length of the contract should be decreased because the marginal cost of writing the contract is greater than the marginal benefit.
Step-by-step explanation:
If a student has observed that the marginal benefit (MB) of writing a contract is $120 and the marginal cost (MC) of that contract is $150, it implies that the cost of creating an additional contract is greater than the benefit received from it. According to economic theory, the optimal behavior would be to decrease the quantity until marginal cost equals the marginal benefit. This principle ensures that resources are not wasted on producing goods or services that do not bring a net benefit. In the context given, since MB is less than MC, the marginal benefit from producing an additional unit of a good is less than the marginal cost of producing it, thus the society (or individual in this case) should produce less of the good, which means the optimal contract length should be decreased.
Looking at the provided references and examples, they all suggest that the optimal point of production or service provision is where the price (P) equals the marginal cost (MC), which is also where marginal revenue (MR) equals MC. This rule ensures that the products or services provided are at a level that brings the greatest overall benefit to society and maximizes profits. If the contract in question is such a product or service, then decreasing the length or number until MB equals MC would be the economically rational decision.