A firm might be liable for $10 million if a lawsuit is brought against it.The firm judges that the probability that the suit will be brought is 0.6.In addition,it believes that its chance of winning such a suit (in which case it owes $0)is 0.7.The firm's overall expected liability is:
A)$6 million.
B)$4.2 million.
C)$3 million.
D)$1.8 million.
E)$1.2 million.

Question

Quizplus · Accepted Answer

The expected liability is the probability of the suit being brought multiplied by the amount of the liability if the suit is brought, minus the probability of winning the suit multiplied by the amount of the liability if the suit is won. In this case, the expected liability is 0.6 * $10 million - 0.7 * $0 = $6 million.

A Firm Might Be Liable for $10 Million If a Lawsuit