Question
In a product liability case, a company can settie out of court for a loss of
a. What is the expected value of the amount the company can lose by taking the case to court?
240000
b. Should the company settie out of court?
A. The company should settle out of court, since the amount it expects to gain by going to trial is more than the cost of setting out of court.
B. The company should settle out of couit, since the amount it expects to lose by going to trial is more than the cost of setting out of court.
C. The company should allow the case to go to trial, since the amount it expects to gain by going to trial is more than the cost of setting out of court.
D. The company should allow the case to go to trial, since the amount it expects to lose by going to trial is less than the cost of setting out of court.
a. What is the expected value of the amount the company can lose by taking the case to court?
240000
b. Should the company settie out of court?
A. The company should settle out of court, since the amount it expects to gain by going to trial is more than the cost of setting out of court.
B. The company should settle out of couit, since the amount it expects to lose by going to trial is more than the cost of setting out of court.
C. The company should allow the case to go to trial, since the amount it expects to gain by going to trial is more than the cost of setting out of court.
D. The company should allow the case to go to trial, since the amount it expects to lose by going to trial is less than the cost of setting out of court.
Ask by Reid Owen. in the United States
Mar 20,2025
Upstudy AI Solution
Tutor-Verified Answer
Answer
a. The expected loss by going to trial is $240,000.
b. The company should allow the case to go to trial because the expected loss ($240,000) is less than the settlement cost ($350,000).
Solution
Step 1. Calculate the expected loss if the company goes to trial
The company faces two outcomes at trial:
- Loss of
if found guilty. - Loss of
if found not guilty.
The estimated probability of a not-guilty verdict is
The expected value
Step 2. Compare the expected trial loss to the settlement cost
- Settlement cost:
- Expected trial loss:
Since
Step 3. Answer the questions
a. The expected value of the amount the company can lose by taking the case to trial is:
b. The company should not settle out of court since the expected loss at trial is less than the settlement cost. This corresponds to:
D. The company should allow the case to go to trial, since the amount it expects to lose by going to trial is less than the cost of setting out of court.
Answered by UpStudy AI and reviewed by a Professional Tutor
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Simplify this solution Mind Expander
It’s all about crunching those numbers! The expected loss if the company goes to trial can be calculated using the formula:
Now, when deciding whether to settle or go to trial, we’re comparing that expected loss of
