Alpha Limited (Alpha) is a dealer in paper. Book Limited (Book) makes books. On Tuesday, Alpha and Book enter into a contract in which Alpha agrees to deliver 50 units of paper to Alpha on Thursday and Book agrees to pay $3.00 per unit. One unit of paper can be converted into one book. Alphas cost of delivering the paper is $50. Books cost of converting the paper into novels is $100, $50 of which must be spend on Thursday morning before the paper is delivered and which cannot be recovered if no paper arrives. Book can sell their novels for $7.00 per unit (assume that if Alpha breaches, Book is required to go to the spot market).

Assume that Alpha collects payment at the time of delivery. Book gets shut down on Wednesday due to allegations of copyright infringement and will not be able to re-open until the investigation is complete (which will likely take at least a year). Any paper Book purchases will go to waste and have to be burned.

If Book breaches, it will refuse to accept delivery. Alpha, as dealer, can sell the paper to someone else for $2.50 per unit.

A) Is it efficient for Book to breach the contract?

B) Under what measures of damages will efficient breach/performance be achieved?

Now assume that, in reliance on the contract, Alpha spends $10 getting precise directions over the phone from Book as Book is located in a difficult area to navigate. The remaining costs of delivery are $40. The total cost is therefore $50 to Alpha. If Alpha needs to deliver to a third party, delivery costs will be $50.

Book can take the following precautions to minimize or eliminate the risk of being shut down for copyright infringements:

Level of Precaution	Prob. of Shut Down	Cost of Precaution
1	50%	$0
2	20%	$30
3	0%	$50

C) What is the efficient level of precaution?

D) Under which measure of damages will Book engage in efficient precaution?