Suppose that Arnold Schwarzenegger (AS) pays Besanko, Dranove, Shanley, and Schaefer (BDS2) an advance of $5 million to write the script to Incomplete Contract, a movie version of their immensely popular text on business strategy. The movie contract includes certain script requirements, including one that AS gets to play a strong, silent, business strategist with superhuman analytic powers. BDS2 spend

$100,000 worth of their time to write a script that is tailor-made for the ex-

Terminator (AS, that is). When they turn in the script to AS, he claims that it fails to live up to the contractual requirement that he has several passionate love scenes, and so he attempts to renegotiate. Given the ambiguity over what constitutes passion, BDS2 are forced to agree.

(a) What was BDS2’s rent?

(b) What is their quasi-rent? What assumptions do you have to make to compute this?

(c) Could BDS2 have held up AS? Explain.