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# What should the company bid to maximize EMV?

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Company A is going to bid on a government contract. It will be a sealed bid (not known to other companies). The low bid will win the contract. The company estimates that it will cost 5k to submit the bid and 95k to supply the instruments if it gets the bid. Company A knows from past history that the possible low bids from the competition, if any, and the associated probabilities are shown below;

Low Bid Probability

less than 115k 0.2

between 115k and 120k 0.4

between 120k and 125k 0.

greater than 125k 0.1

The objective is to develop a decision model that finds the expected monetary value (EMV) for various bidding strategies and indicates the best bidding strategy.
Additionally, Company A believes that there is a 30% chance that there will be NO competing bids. What should the company bid to maximize EMV?

Create new probability estimates and cost of profit figures in a worksheet.

Create a narrative describing this new decision re-application. Please explain where one would obtain the cost and probability data for each branch of the tree, or outcome.
Use the PrecisionTree Add-In or Excel for number crunching. If thre are any issues with the Add-In, or Excel, just include a sketch of the decision tree as a Microsoft word (2007) or Excel attachment.

Thank You

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#### Solution Preview

Company A wants to bid on a contract. It will cost \$5000 to bid. If they win the contract, they will need to pay \$95,000 to supply the instruments, but they will get paid the value of the bid.

Competing companies are also bidding. Here is a table of the probabilities:

Competition Bid Probability If Company A bids ... the chance of winning is ...
5k 1 (assuming that the "less than 115k" is not this ...

\$2.19