Final answer:
The optimal contract length is found when the marginal benefit of $100 equals the marginal cost of writing the contract. The principle is parallel to the market rule where societal benefits measured by market price should equal societal costs measured by marginal cost.
Step-by-step explanation:
The question is asking to determine the optimal contract length by balancing the marginal benefit of writing a contract against its marginal cost. The information provided suggests that the marginal benefit of a contract is $100. The question does not specify the actual marginal cost function regarding contract length, so one cannot calculate the exact optimal length without this. However, the general principle is that the optimal contract length is determined where the marginal benefit of the contract equals the marginal cost of writing it.
According to economic theory, as seen in chapter 9, this is similar to the basic market principle where a good should be produced until its market price (P), representing the benefit to society, equals the marginal cost (MC) of production, representing the cost to society. Therefore, the optimal contract length would be at a point where the additional benefit from extending the contract length equals the additional cost of doing so. Typically, as the length of a contract increases, the cost of writing it may increase due to factors like increased complexity and the need for more negotiation or legal scrutiny.