Question: 1. Assume that the following legal rule applies to Example 1 (the "grasshopper killer"): "Breach of contract arising from false or misleading advertising results in liability equal to two times the consumer's out-of-pocket expenditures in reliance on the promise." Given this rule, what is the perfect-information judgment?
Example 1: In response to a magazine advertisement for "a sure means to kill grasshoppers," a farmer mailed $25 and receives by return post two wooden blocks with the instructions, "Place grasshopper on Block A and smash with Block B." Filing a legal complaint will cost the farmer more than the $25 that he lost. The farmer consults a lawyer to determine whether he has a legal remedy that is economically viable.
2. Why is a trial economically inferior to a settlement on the same terms as the expected trial judgment?