Premium Airlines has recently offered to settle claims for a class-action suit, which was originated for alleged price fixing of tickets. The proposed settlement is stated as follows. Draw a decision tree for this situation.
Initially, Premium Airlines will make available to the settlement class a main fund of $25 million in coupons. If the number of valid claims submitted is 1.25 million or fewer, the value of each claim will be the result obtained by dividing $25 million by the total of valid claims submitted. For instance, if there were 500,000 valid claims, each person submitting a claim would receive a coupon worth $50.
The denomination of each coupon distributed will be in whole dollar amount not to exceed $50. Thus is there are fewer than 500,000 valid claims, then the value of each claim will be divided among two coupons or more. For example, if there are 250,000 valid claims, each person submitting a valid claim will receive two coupons, each having a face value of $50, for a total coupon value of $100.
If the number of valid claims submitted is between 1.25 million and 1.5 million, Premium Airlines will make available a supplemental fund of coupons, with a potential value of $5 million. The supplemental fund will be made available to the extent necessary to provide one $20 coupon for each valid claim. If there are more than 1.5 million valid claims, the total amount of the main fund and the supplemental fund, $30 million, will be divided evenly to produce one coupon for each valid claim. The value of each such coupon will be $30 million divided by the total number of valid claims.
Decision Tree is formulated.