In a procuct labillyy ease, a company can settle out of court for a loss of , or go to trial, loang ir found gully and nothind II found not gully, Lawers for the company estimate the probabilly of a noigully vertict to be 0.8 , Complete pats (a) through (b) below.
a. What is the expected value of the ancunt the company can lose by taking the case to coutr

Ask by Cole Wheeler. in the United States

Mar 20,2025

Question

In a procuct labillyy ease, a company can settle out of court for a loss of , or go to trial, loang ir found gully and nothind II found not gully, Lawers for the company estimate the probabilly of a noigully vertict to be 0.8 , Complete pats (a) through (b) below.
a. What is the expected value of the ancunt the company can lose by taking the case to coutr

Ask by Cole Wheeler. in the United States

Mar 20,2025

UpStudy AI · Accepted Answer

**Step 1. Define the outcomes and probabilities**

The company has two outcomes if it goes to trial:  
- It loses $$ \$1,200,000 $$ if found guilty.  
- It loses $$ \$0 $$ if found not guilty.

The probability of a not guilty verdict is given as $$ 0.8 $$. Therefore, the probability of a guilty verdict is  
$$
1 - 0.8 = 0.2.
$$

**Step 2. Calculate the expected loss**

The expected loss $$ E $$ when going to trial is calculated as:

$$
E = (0.2)(1,200,000) + (0.8)(0).
$$

**Step 3. Perform the calculation**

$$
E = 0.2 \times 1,200,000 = 240,000.
$$

Thus, the expected value of the amount the company can lose by taking the case to court is:

$$
\$240,000.
$$
The expected loss by taking the case to court is \$240,000.