Question 1194655
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I'll refer "Technically Techno" as "Company T".


This company has patents on various devices, and it claims some other competitor is stealing company T's ideas.


If Company T takes the other company to court, then we have these scenarios:<table border = "1" cellpadding = "5"><tr><td>Payout of...</td><td>Probability</td></tr><tr><td>$300,000 - $50,000 = $250,000</td><td>40% = 0.40</td></tr><tr><td>$50,000 - $50,000 = $0</td><td>30% = 0.30</td></tr><tr><td>$0 - $50,000 = -50,000 dollars</td><td>30% = 0.30</td></tr></table>
For each payout, we subtract off the legal costs ($50,000) of going to court.
The negative payout means the company lost that amount of money.


All of the probabilities mentioned add to the decimal value 1, representing 100% of the possible outcomes.
Keep in mind that I'm not talking about settlement. Right now I'm talking about lawsuit only.


Multiply each payout amount with their respective probability<table border = "1" cellpadding = "5"><tr><td>Net Payout</td><td>Probability</td><td>payout*probability</td></tr><tr><td>$250,000</td><td>0.40</td><td>250,000*0.40 = $100,000</td></tr><tr><td>$0</td><td>0.30</td><td>0*0.30 = $0</td></tr><tr><td>-50,000 dollars</td><td>0.30</td><td>-50,000*0.30 = -15,000</td></tr></table>
Add up every result in that third column
100,000+0+(-15,000) = $85,000
This is the expected value


The company T expects, on average, the lawsuit payouts will bring in net winnings of $85,000


On the other hand, if company T settles, then they will net $75,000 - $10,000 = $65,000.


Summary:
Expected net winnings from the lawsuits = $85,000
Net amount from the settlement = $65,000


The lawsuits value is larger, so it is advantageous for the company to <u>not</u> settle.
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