The modern theory of contracts is sometimes called the theory of joining wills which simply means, when parties make an agreement they are joining together to complete an endeavor of mutual interest. The problem with all contracts that endure over time is that not all potential challenges can be anticipated. The idea of joining wills is that parties will attempt to seek accommodations to advance their mutual interest, so long as the return on the invested activity pays off. Froeb illustrates the idea by the example of marriage as a contract.

  1. Identify a sunk cost investment you have made or one that your company/organization has made.
  2. How might the investment be, or has been, subject to post-investment holdup?
  3. Suppose your employer took note of your decision to get an MBA and appointed you as the interim director for new department. Shortly after you completed your degree, your company merged with another company and the new department you were managing was abolished? Is this a post investment holdup? Is there a financial injury?

 Part 2


What are they?  What is the key difference between an economy of scale and an economy of scope?

One source of growth is external growth from a merger and/or acquisition.  Often merger/acquisition are justified on the basis of the expected benefits from the merger/acquisition are ‘synergies’.  Economists know these as economies of scale and economies of scope.

Identify a recent merger/acquisition and use it to and answer the question: was the merger/acquisition predominately about gaining economies of scale or economies scope?


Instructions: These are short answers so no certain amount of words or pages need. Just about 3 sentences/enough for a discussion


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