What is the best bidding decision

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An information system consultant is bidding on a project that involves some un- certainty. Based on past experience, if all went well (probability 0.1), the project would cost $1.2 million to complete. If moderate debugging were required (probability 0.7) the project would probably cost $1.4 million. If major problems were encountered (probability 0.2) the project could cost $1.8 million. Assume that the firm is bidding competitively and the expectation of successfully gaining the job at a bid of $2.2 million is 0, at $2.1 million is 0.1, at $2.0 million is 0.2, at $1.9 million is 0.3, at $1.8 million is 0.5, at $1.7 million is 0.8, and at $1.6 million is practically certain. a. Calculate the expected value for the given bids. b. What is the best bidding decision? c. What is the expected value of perfect information?

Reference no: EM13758675

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