KLM Computer Company is considering submission of a bid for a government contract to provide 10,000 specialized computers for use in computer-aided design. There is only one other potential bidder for this contract, Simplex Computers, Inc., and the low bidder will receive the contract. KLM's bidding decision is complicated by the fact that KLM is currently working on a new process to manufacture the computers. If this process works as hoped, then it may substantially lower the cost of making the computers. However, there is some chance that the new process will actually be more expensive than the current manufacturing process. Unfortunately, KLM will not be able to determine the cost of the new process without actually using it to manufacture the computers. If KLM decides to bid, it will make one of three bids: $9,500 per computer, $8,500 per computer, or $7,500 per computer. Simplex Computers is certain to bid, and it is equally likely that Simplex will bid $10,000, $9,000, or $8,000 per computer. If KLM decides to bid, then it will cost $1,000,000 to prepare the bid due to the requirement that a prototype computer be included with the bid. This $1,000,000 will be totally lost regardless of whether KLM wins or loses the bidding competition. With KLM's current manufacturing process, it is certain to cost $8,000 per computer to make each computer. With the proposed new manufacturing process, there is a 0.25 probability that the manufacturing cost will be $5,000 per computer and a 0.50 probability that the cost will be $7,500 per computer. Unfortunately, there is also a 0.25 probability that the cost will be $8,500 per computer. 

(a): Should KLM Computer Company submit a bid, and if so, what should they bid per computer, Construct a decision tree to capture the above scenario. (25 Points) 

(c): Is there a strategy that dominates another one stochastically/deterministically (5 Points) 

(d): Write down the number of Decision Strategies that you can find from the developed decision tree.

Answer rating: 100% (QA)

To solve this problem well construct a decision tree to visualize the possible outcomes an... View the full answer