Question

A company is trying to decide whether to bid for a certain contract or not. They estimate that merely preparing the bid will cost $8,000. If their company bid then they estimate that there is a 70% 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 estimates that the labour and material costs associated with the contract are $108,000. They are considering three possible bid prices, namely $160,000, $180,000 and $200,000. They estimate that the probability of these bids being accepted (once they have been short-listed) is 0.80, 0.70 and 0.60 respectively. What should the company do and what is the expected monetary value of your suggested course of action?

          A company is trying to decide whether to bid for a certain
contract or not. They estimate that merely preparing the bid will
cost $8,000. If their company bid then they estimate that there is
a 70% 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 estimates that the labour and material costs
associated with the contract are $108,000. They are considering
three possible bid prices, namely $160,000, $180,000 and $200,000.
They estimate that the probability of these bids being accepted
(once they have been short-listed) is 0.80, 0.70 and 0.60
respectively.
What should the company do and what is the expected monetary
value of your suggested course of action?

Added by Jennifer H.

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