A contractor submits a bid on a project for which more

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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 work as a random variable with mean $4 million and standard deviation $1 million. The contractor wishes to submit a bid such that his expected profit will be 10% of his expected costs.

a) What should be the bid?

b) If this bid is accepted, what will be the standard deviation of the profit made on the project?

Reference no: EM13378799

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