Question: Turkcell is considering if it should tender for two contracts (LTE and Infrastructure upgradation) on offer from a government department for the supply of certain

Turkcell is considering if it should tender for two contracts (LTE and Infrastructure upgradation) on offer from a government department for the supply of certain components. The company has three options:

  1. Tender for LTE only; or
  2. Tender for Infrastructure upgradation only; or
  3. Tender for both LTE and Infrastructure upgradation.

Turkcell will have to bear additional costs if tenders are to be submitted and these costs will have to be retrieved from the contract price. However, in case of an unsuccessful tender, the company will face loss.

The cost of tendering for LTE only is 50,000 TL and the component supply cost if the tender is successful is 18,000 TL.

Similarly, the cost of tendering for infrastructure upgradation only is 14,000 TL and the component supply cost provided the tender is successful is 12,000 TL.

If the company decides to tender for both contracts, the cost of tendering for both LTE and Infrastructure upgradation is 55,000 TL, and the component supply cost, if the tender is successful, is 24,000 TL.

Revenue from each contract is represented by the tender prices. For each contract, possible tender prices are known. The probability of getting the contract with a particular tender price are tabulated in the following table. Turkcell can only submit one tender and cannot submit two tenders (at different prices) for the same contract.

Option

Possible tender price

Probability of getting a contract

LTE only

130000

0.2

115000

0.85

Infrastructure upgradation only

70000

0.15

65000

0.8

60000

0.95

LTE & Infrastructure upgradation

190000

0.6

140000

0.65

In case Turk cell tenders for both LTE and Infrastructure upgradation it will either win both contracts (at the price shown above) or no contract at all.

  1. Model the problem with a decision tree. Provide the details (probabilities, returns, costs, etc. on the tree)
  2. Model the problem with an influence diagram. Provide the tables associated with the nodes.
  3. Determine the optimal strategy that maximizes the expected profit using the decision tree.

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