Gamma construction company has been asked to bid on theconstruction of 20 lighte

Question

Gamma construction company has been asked to bid on theconstruction of 20 lighted tennis courts for Stateuniversity. Each court will cost $20,000 in constructioncosts, and, in addition, there will be a fixed expense of $10,000to cover the preparation and submittal of the bid. Gamma isconsidering five different bid levels. Each involves adifferent profit margin, calulated as a percentage above totalconstruction cost (TCC). Fixed expenses are excluded fromthis calculation, but they are relevant for profitability. Based on previous experience, Gamma's management is able toestimate the probability that it will win the bid at each levelbeing considered. The bids and probabilities are summarizerdbelow: Bid number amount ofbid Probability of win 1 TCC = 5% 0.80 2 TCC +10% 0.70 3 TCC +15% 0.50 4 TCC +20% 0.30 5 TCC +25% 0.20 Gamma's objective is to select the bid that maximizes itsexpected profit.

Explanation / Answer

http://www.chegg.com/homework-help/questions-and-answers/gamma-construction-company-asked-bid-theconstruction-20-lighted-tennis-courts-stateunivers-q359104

Related Questions

Navigate

• Browse (All)
• Browse G
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.