John is considering bidding against Dave for an endorsement contract. He estimat

Question

John is considering bidding against Dave for an endorsement contract. He estimates it will cost $ 1 million to prepare the demo that must accompany the bid. The profitability of the contract depends on the bid price John submits. He could choose to bid $ 8 million, $ 5.75 million, $ 5 million or not bid at all. The chance events are the Dave does not bid lower then $ 8 million, $5.75 million, or $ 5 million or that his bid is lower than $ 5 million. Assume that it will cost John $ 3 million to produce his endorsement.
Construct a payoff matrix whose entries are John's profit.

Explanation / Answer

Here it is with win/lose on the side:
Payoff Matrix
Bid is ----> 8 5.75 5 No bid
Win profit 4 1.75 1 0
Lose loss is1 1 1 0

Here it is with Dave's bids on the side. Here loss is negative and profit is positive.
Payoff Matrix
Bid is ----> 8 5.75 5 No bid
Dave high 4 1.75 1 0
Dave med -1 1.75 1 0
Dave low -1 -1 1 0
Dave dirt -1 -1 -1 0

This is why company secrets are so important. A blabbermouth costs a company much more than he is worth.

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