Two beverage companies are bidding on the exclusive rights to sell soda at the University of Houston
Question:
Two beverage companies are bidding on the exclusive rights to sell soda at the University of Houston for the next 10 years. Company 1 will earn 50 cents profit per bottle sold (exclusive of the payment to the university) and believes the number of bottles sold during the next 10 years will be normally distributed, with a mean of 6 million and a standard deviation of 1.5 million. Company 1 believes that Company 2’s bid is equally likely to be any amount between $1 million and $2.5 million. What should Company 1 bid to maximize its expected profit? You may find it helpful to know that for any two integers n1 and n2, the Excel function =RANDBETWEEN(n1,n2) is equally likely to return any integers between n1 and n2 inclusive. Considering bids of $1, $1.5, $2, $2.5, and $3 million, which bid maximizes the expected profit?
Step by Step Answer:
Microsoft Excel Data Analysis And Business Modeling
ISBN: 9780137613663
7th Edition
Authors: Wayne Winston