Question: 1. Make a small change in the numbers in Figure. Assume that litigation costs the plaintiff $20, and the plaintiff wins $40 (not $100) at trial with probability .5. Define a nuisance suit as one in which the expected value of trial is nonpositive (EVT 0). Demonstrate that this is a nuisance suit.
2. The preceding question assumed that the plaintiff expects to win $40 at trial with probability .5, and that the trial costs the plaintiff $20. Assume that litigation costs the defendant $60 (not $20). Demonstrate that a reasonable settlement is for the defendant to pay the plaintiff $40.