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Unformatted text preview: Note that there is a trick which makes this very easy to solve. The expected cost is the same no matter what you bid. The expected cost is: 450K= .25*600K+ .5*450K+ .25*300K So, if you bid 500K, 750K, or 1000K, the expected outcome of winning the contract is 50K, 300K, and 550K respectively. So, one can solve this problem simply by taking the larger of: Bid 500K: .9*50K Bid 750K: .5*300K Bid 1000K: .2*550K The best option is to bid 750K for an expected profit of 150K on average....
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- Fall '07