firm A is facing a possible lawsuit by legal firm B. firm B represents the family of Mr. Smith, who was killed in a motel fire (caused by faulty wiring). Firm A is the builder of the motel. firm A has asked its legal team to estimate the likely jury award it will ordered to pay in court. expert legal councel anticipates three possible court outcomes:
-awards 0f $1,000,000, $600,000, or $0, with probabilities .2, .5, and .3 respectively. in addition to any awards, firm A's legal expenses associated with fighting the court case are estimated to be $100,000.
Firm A also conconsidered the alternative of entering out of court settlement negotiations with firm B. based on the assessments of its lawyers, firm A envisions the other side holding out for one of two settlement amounts: $900,000, (a high amount) or $400,000 (a more reasonable amount). each demand is considered equally likely. if presented with one of these settlement demands, firm A is free to accept it (in which case firm B agrees to wave any future right to sue) or reject it and take its chances in court. the legal cost of pursuing a settlement (wether or not one is reached) is $50,000 determine the settlement or litigation strategy that minimizes firm A's expected total cost