contract-law
Why&#39;s A&#39;s expected profit $.04?
<p>Paul Davies. <a href="https://www.amazon.co.uk/Smiths-Law-Contract-Paul-Davies/dp/0198807813/ref=dp_ob_title_bk" rel="nofollow noreferrer"><em>JC Smith's The Law of Contract</em> (2018 2 ed)</a>. p. 6.</p>

<blockquote>
  <p>On a slightly diﬀerent tack, but in a similar vein, Judge Richard Posner has written:<sup>17</sup></p>
  
  <blockquote>
    <p>Suppose I sign a contract to deliver 100,000 custom-ground widgets at $.10 apiece to A, for use
    in his boiler factory. After I have delivered 10,000, B comes to me, explains that he desperately
    needs 25,000 custom-ground widgets at once since otherwise he will be forced to close his pianola factory at great cost, and oﬀers me $.15 apiece for 25,000 widgets. I sell him the widgets
    and as a result do not complete timely delivery to A, who sustains $1000 in damages from my
    breach. Having obtained an additional profit of $1250 on the sale to B, I am better off even
    after reimbursing A for his loss. Society is also better off. Since B was willing to pay me $.15
    per widget, it must mean that each widget was worth at least $.15 to him. But it was worth only
    $.14 to A—$.10, what he paid, plus $.04 (<strong>$1000</strong> divided by <strong>25,000</strong>), his expected profit. Thus the
    breach resulted in a transfer of the 25,000 widgets from a lower valued to a higher valued use.</p>
  </blockquote>
  
  <p><sup>17</sup> R Posner, <em>Economic Analysis of the Law</em> (8th edn, Aspen, 2011) 151.</p>
</blockquote>

<ol>
<li><p>Pls see the emboldenings. Whence did the $1000 hail? </p></li>
<li><p>Whence did the 25,000 hail? This is B's quantity demanded, not A's?</p></li>
</ol>

<ol>
<li><p>$1000 is the total amount of damages sustained by A due to his delivery being 25,000 widgets short.  We presume these damages represent lost profits.  So that is 4 cents of profit lost per widget not delivered; in other words, had he received those 25,000 widgets, he would have been able to earn a profit of 4 cents on each one.</p></li>
<li><p>25,000 is the number of widgets that were delivered to B, even though A wanted them.  Therefore, A received 25,000 widgets fewer than he wanted.  </p></li>
</ol>

<p>By failing to obtain 25,000 widgets on time, A suffered a loss of profits. A sues the seller and is awarded $1000 in damages for these lost profits.</p>

<p>25,000 widgets / 1000 in lost profit = 0.04 profit per widget.</p>

<p>Price per widget + profit per widget = what A thought each widget was truly worth.</p>

<p>Therefore A thought each widget was worth $0.14 in economic value.</p>

<p>Interestingly, the 1000 in lost profits is set by the court, not necessarily A. Therefore 0.14 is what the court thinks they are worth, not necessarily what A thinks they are worth.</p>
