model with this approach. A second approach involves electronic components. The

engineers estimate that the electronic approach will cost only $$50,000$ to develop a

model of the tape drive, but with only a $50$ percent chance of satisfactory results. A

third approach uses magnetic components; this costs $$80,000,$ with a $70$ percent

chance of success.

Acme engineers are restricted to working on only one approach at a time and they have

time to try only two approaches. If it tries either the magnetic or electronic method and the

attempt fails, the second choice must be the mechanical method to guarantee a

successful model. The management of Acme needs help in incorporating this information

into a decision to progeed or not.

Acme's Research Institute, discovers that a computer company wants a new tape drive for

a proposed new computer system. Since the company does not have research people

available to develop the new drive, it will subcontract the development to an independent

research firm. The computer company has offered a fee of $$250,000$ for the best proposal

for developing the new tape drive. The contract will go to the firm with the best technical

plan and the highest reputation for technical competence. Acme wants to enter the

competition. Management estimates a cost of $$50,000$ to prepare a proposal with a fifty$-$

fifty chance of winning the contract. However, Acme's engineers are uncertain about how

they will develop the tape drive if they are awarded the contract.

Three alternative approaches can be tried. The first approach is a mechanical method

with a cost of $$120,000,$ and the engineers are certain they can develop a successful model with this approach. A second approach involves electronic components. The engineers estimate that the electronic approach will cost only $$50,000$ to develop a model of the tape drive, but with only a $50$ percent chance of satisfactory results. A third approach uses magnetic components; this costs $$80,000,$ with a $70$ percent chance of success. Show work on how you got to the answer.