2) A contractor is faced with the decision of whether or not to bid on one...
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2) A contractor is faced with the decision of whether or not to bid on one of two projects, a dam or a highway. The contractor is limited to choosing, at most, only one of the projects for bidding duc to limited manpower and equipment available. It may also choose not to bid on either of the projects, in which case it is assumed that it would neither gain nor lose anything. The contractor has collected data and performed some preliminary analyses in the two projects as summarized below. For either the dam or highway project, the contractor has the option of bidding either high or low. The probability of being awarded the contract is estimated from past records of bids made on similar types of projects. For similar dam projects, when a low bid was submitted, the contractor received the contract 4 out of 10 times and lost it 6 out of 10. On the other hand, when a high bid was submitted, it received the contract award only 2 out of 10 times and lost it 8 out of 10. For jobs similar to the highway project, when low bids were submitted, the contract was awarded 2 out of 10 times and was lost 8 out of 10. For high bids, the same figures were 1 of 10 awarded and 9 of 10 lost. Also, profits or losses from the projects under consideration incur risk due to the unpredictable nature of weather, equipment breakdowns, labors trikes, and unknown project conditions such as the amount of rock encountered in excavations, subsoil strength, and so on. Moreover, estimated quantities of work items and estimated unit prices often do not match those found when the project is actually built. Again, using records of past experience on similar types of projects, the contractor is able to make estimates of the net profit under high and low bid conditions if awarded the contract (table on the next page). Note how profits vary for a given level of bid. Costs incurred in preparing bid packages are $50,000 and $100,000 for the dam and highway projects, respectively. Draw a decision tree representing possible decisions that the contractor might make and determine the expected profit of this investment. Project Type of Bid (Proposed Price) Dam Highway High High High Low Low Low High High High Low Low Low Historical Profit ($1000) 800 400 -200 500 100 -400 2,000 1,000 -400 800 400 -400 Probability of Profit ($1000) 0.2 0.5 0.3 0.3 0.5 0.2 0.3 0.6 0.1 0.2 0.6 0.2 2) A contractor is faced with the decision of whether or not to bid on one of two projects, a dam or a highway. The contractor is limited to choosing, at most, only one of the projects for bidding duc to limited manpower and equipment available. It may also choose not to bid on either of the projects, in which case it is assumed that it would neither gain nor lose anything. The contractor has collected data and performed some preliminary analyses in the two projects as summarized below. For either the dam or highway project, the contractor has the option of bidding either high or low. The probability of being awarded the contract is estimated from past records of bids made on similar types of projects. For similar dam projects, when a low bid was submitted, the contractor received the contract 4 out of 10 times and lost it 6 out of 10. On the other hand, when a high bid was submitted, it received the contract award only 2 out of 10 times and lost it 8 out of 10. For jobs similar to the highway project, when low bids were submitted, the contract was awarded 2 out of 10 times and was lost 8 out of 10. For high bids, the same figures were 1 of 10 awarded and 9 of 10 lost. Also, profits or losses from the projects under consideration incur risk due to the unpredictable nature of weather, equipment breakdowns, labors trikes, and unknown project conditions such as the amount of rock encountered in excavations, subsoil strength, and so on. Moreover, estimated quantities of work items and estimated unit prices often do not match those found when the project is actually built. Again, using records of past experience on similar types of projects, the contractor is able to make estimates of the net profit under high and low bid conditions if awarded the contract (table on the next page). Note how profits vary for a given level of bid. Costs incurred in preparing bid packages are $50,000 and $100,000 for the dam and highway projects, respectively. Draw a decision tree representing possible decisions that the contractor might make and determine the expected profit of this investment. Project Type of Bid (Proposed Price) Dam Highway High High High Low Low Low High High High Low Low Low Historical Profit ($1000) 800 400 -200 500 100 -400 2,000 1,000 -400 800 400 -400 Probability of Profit ($1000) 0.2 0.5 0.3 0.3 0.5 0.2 0.3 0.6 0.1 0.2 0.6 0.2
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16 1 Dam project 50 60 10 Highway Project 100 116 16 High Bid 60 Low Bid 48 High Bid 116 Low B... View the full answer
Related Book For
Essentials of Business Analytics
ISBN: 978-1285187273
1st edition
Authors: Jeffrey Camm, James Cochran, Michael Fry, Jeffrey Ohlmann, David Anderson, Dennis Sweeney, Thomas Williams
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