2. A food processing company is trying to decide whether to bid for a certain contract or not. They estimate that merely preparing the bid will cost $10,000. If their company bid then they estimate that there is a 50% chance that their bid will be put on the "short-list", otherwise their bid will be rejected. Once "short-listed" the company will have to supply further detailed information (entailing costs estimated at $5,000). After this stage their bid will either be accepted or rejected. The company estimate that the labor and material costs associated with the contract are $127,000. They are considering three possible bid prices, namely $155,000, $170,000 and $190,000. They estimate that the probability of these bids being accepted (once they have been short-listed) is 0.90, 0.75 and 0.35 respectively. Using the above case study, answer the following questions using the decision model of the decision problem you are to construct in Precision Tree.

a. Develop a hand draw influence diagram using the information in the case study. Make sure you properly label your influence diagram.

b. Solve the diagram by hand using the steps outlined in the lecture notes, Clemen and Reilly Chapter 4, and the supplemental reading entitled Solving influence diagrams.

c. Develop the influence diagram in Precision Tree using the information in the case study. Make sure you properly label your influence diagram.

d. Convert the influence diagram to a decision tree.

e. Based on expected value, what would you recommend that the food processing company should do and why? State in words the optimal decision strategy for the company.

f. What should the company do based on the highest expected monetary value?