SciTool Incorporated, a company that specializes in scientific instrument has been invited to make a bid on a government contract. The contract calls for a number of instruments to be delivered during the year. The bids must be sealed. So that that no company knows what the other are bidding and the low bid wins the contract. SciTools estimates that it will cost $95,000 to supply the instruments if ti wins the contract. On the basis of past contracts of this type. SciTools believes that the competitors? bid based on the following probabilities.

The company is deciding to bid 115,000, 120,000, or 125,000. I have created the payoff able as follows.

a. Which strategy would you recommend the company if you follow the optimistic approach?

b. Which you recommend the company if you follow the pessimistic approach?

c. Create the regret table. What do you recommend based on minimum regret approach?

d. What do you recommend based on Equal likelihood approach?

e. What do you recommend based on Expected value approach?

f Calculate the expected value of perfect information?

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Competitor's lowest bid Probability Less than $115,000 0.2 Between $115,000 and $120,000 0.4 Between $120,000 and $125,000 0.3 Greater than $125,000 0.1 Competitor bids less than $115,000 Bid 115,000 Bid 120,000 Bid 125,000 0 0 Competitor bids between $115,000 and $120,000 20000 0 0 Competitor bids between $120,000 and $125,000 20000 25000 0 Competitor bids more than $125,000 20000 25000 30000 Competitor's lowest bid Probability Less than $115,000 0.2 Between $115,000 and $120,000 0.4 Between $120,000 and $125,000 0.3 Greater than $125,000 0.1 Competitor bids less than $115,000 Bid 115,000 Bid 120,000 Bid 125,000 0 0 Competitor bids between $115,000 and $120,000 20000 0 0 Competitor bids between $120,000 and $125,000 20000 25000 0 Competitor bids more than $125,000 20000 25000 30000

Answer rating: 100% (QA)

a Under optimistic or MaxiMax approach Maximum payoff under Bid115000 strategy 20000 Maximum payoff ... View the full answer