A contractor submits a bid on a project for which more research and development work needs to be done. It is estimated that the total cost of satisfying the project specifications will be $20 million plus the cost of the further research and development work. The contractor views the cost of this additional work as a random variable with a mean of $4 million and a standard deviation of $1 million. The contractor wishes to submit a bid such that his expected profit will be 10% of his expected costs. What should be the bid? If this bid is accepted, what will be the standard deviation of the profit made by the project?

A contractor submits a bid on a project for which more research and development work needs to be done. It is estimated that the total cost of satisfying the project specifications will be $20 million plus the cost of the further research and development work. The contractor views the cost of this additional work as a random variable with a mean of $4 million and a standard deviation of $1 million. The contractor wishes to submit a bid such that his expected profit will be 10% of his expected costs. What should be the bid? If this bid is accepted, what will be the standard deviation of the profit made by the project?

Practical Management Science

6th Edition

ISBN:9781337406659

Author:WINSTON, Wayne L.

Publisher:WINSTON, Wayne L.

Chapter9: Decision Making Under Uncertainty

Section: Chapter Questions

Problem 36P

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