2. Consider a bidding problem similar to that presented in class. You can still either bid high or low on either the dam or highway project, or you can not prepare a bid. However, the probabilities and outcomes are given in Tables 2.1 and 2.2. Table 2.1 Probabilities and profits of bid results Project Probability Conditional Profit [$] Result Type of Bid Bid Upon of Bid of Result High Win 0.20 Table 2.2 Lose 0.80 -50,000 Dam Low Win 0.40 Table 2.2 Lose 0.60 -50,000 High Win 0.10 Table 2.2 Lose 0.90 -100,000 Highway Low Win 0.20 Table 2.2 Lose 0.80 -100,000 Table 2.2 Outcome and probabilities, conditional on winning the bid Probability Project Possible of Outcome Bid Type of Profit [$], if Bid is Upon Bid Outcome Won 600,000 0.60 High High -100,000 0.40 Dam Low 300,000 0.70 Low -200,000 0.30 1,200,000 0.60 High High -200,000 0.40 Highway Low 600,000 0.70 Low -300,000 0.30 a(i) Consider that you want to maximize the Expected Value (EV) of profit. Draw the decision tree and “work the problem" on the decision tree (i.e., indicate the various EV values in “boxes" at the appropriate places).
2. Consider a bidding problem similar to that presented in class. You can still either bid high or low on either the dam or highway project, or you can not prepare a bid. However, the probabilities and outcomes are given in Tables 2.1 and 2.2. Table 2.1 Probabilities and profits of bid results Project Probability Conditional Profit [$] Result Type of Bid Bid Upon of Bid of Result High Win 0.20 Table 2.2 Lose 0.80 -50,000 Dam Low Win 0.40 Table 2.2 Lose 0.60 -50,000 High Win 0.10 Table 2.2 Lose 0.90 -100,000 Highway Low Win 0.20 Table 2.2 Lose 0.80 -100,000 Table 2.2 Outcome and probabilities, conditional on winning the bid Probability Project Possible of Outcome Bid Type of Profit [$], if Bid is Upon Bid Outcome Won 600,000 0.60 High High -100,000 0.40 Dam Low 300,000 0.70 Low -200,000 0.30 1,200,000 0.60 High High -200,000 0.40 Highway Low 600,000 0.70 Low -300,000 0.30 a(i) Consider that you want to maximize the Expected Value (EV) of profit. Draw the decision tree and “work the problem" on the decision tree (i.e., indicate the various EV values in “boxes" at the appropriate places).
Practical Management Science
6th Edition
ISBN:9781337406659
Author:WINSTON, Wayne L.
Publisher:WINSTON, Wayne L.
Chapter2: Introduction To Spreadsheet Modeling
Section: Chapter Questions
Problem 20P: Julie James is opening a lemonade stand. She believes the fixed cost per week of running the stand...
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![2. Consider a bidding problem similar to that presented in class. You can still either bid
high or low on either the dam or highway project, or you can not prepare a bid.
However, the probabilities and outcomes are given in Tables 2.1 and 2.2.
Table 2.1 Probabilities and profits of bid results
Project
Probability Conditional
Profit [$]
Bid
Type of
Result
Upon
Bid
of Bid
of Result
High
Win
0.20
Table 2.2
Lose
0.80
-50,000
Dam
Low
Win
0.40
Table 2.2
Lose
0.60
-50,000
High
Win
0.10
Table 2.2
Lose
0.90
-100,000
Highway
Low
Win
0.20
Table 2.2
Lose
0.80
-100,000
Table 2.2 Outcome and probabilities, conditional on winning the bid
Probability
Possible
of Outcome
Project
Bid
Profit [$],
if Bid is
Type of
Bid
Upon
Outcome
Won
High
600,000
0.60
High
-100,000
0.40
Dam
Low
300,000
0.70
Low
-200,000
0.30
1,200,000
0.60
High
High
-200,000
0.40
Highway
Low
600,000
0.70
Low
-300,000
0.30
a(i) Consider that you want to maximize the Expected Value (EV) of profit. Draw
the decision tree and "work the problem" on the decision tree (i.e., indicate the
various EV values in "boxes" at the appropriate places).](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fd610863c-0889-463b-a49b-1a8a59ff2b83%2F3e507b8b-d9aa-41a9-b0eb-df0f262443aa%2F85wzd1_processed.jpeg&w=3840&q=75)
Transcribed Image Text:2. Consider a bidding problem similar to that presented in class. You can still either bid
high or low on either the dam or highway project, or you can not prepare a bid.
However, the probabilities and outcomes are given in Tables 2.1 and 2.2.
Table 2.1 Probabilities and profits of bid results
Project
Probability Conditional
Profit [$]
Bid
Type of
Result
Upon
Bid
of Bid
of Result
High
Win
0.20
Table 2.2
Lose
0.80
-50,000
Dam
Low
Win
0.40
Table 2.2
Lose
0.60
-50,000
High
Win
0.10
Table 2.2
Lose
0.90
-100,000
Highway
Low
Win
0.20
Table 2.2
Lose
0.80
-100,000
Table 2.2 Outcome and probabilities, conditional on winning the bid
Probability
Possible
of Outcome
Project
Bid
Profit [$],
if Bid is
Type of
Bid
Upon
Outcome
Won
High
600,000
0.60
High
-100,000
0.40
Dam
Low
300,000
0.70
Low
-200,000
0.30
1,200,000
0.60
High
High
-200,000
0.40
Highway
Low
600,000
0.70
Low
-300,000
0.30
a(i) Consider that you want to maximize the Expected Value (EV) of profit. Draw
the decision tree and "work the problem" on the decision tree (i.e., indicate the
various EV values in "boxes" at the appropriate places).
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