If the expected litigation value for each firm for a case is $275,000 and the court costs for the firms are $55,000 and $30,000 respectively, then the size of the zone of a mutually beneficial agreement is:
A) $220,000.
B) $85,000.
C) $25,000.
D) $75,000.
E) $245,000.

Question

Quizplus · Accepted Answer

The zone of a mutually beneficial agreement is calculated by subtracting the sum of both firms' court costs from the expected litigation value. Thus, $275,000 - ($55,000 + $30,000) = $275,000 - $85,000 = $190,000. However, the question asks for the size of the zone, which is the sum of the court costs, $55,000 + $30,000 = $85,000.

If the Expected Litigation Value for Each Firm for a Case