What is the optimal bid for your company to make

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Reference no: EM133639409

Problem: Installation Bids

Your company has been asked to bid on the installation of the hardware for wireless network for 23government buildings for Oklahoma City. Each building will cost $21,000 in installation costs, and, in addition, there will be a fixed expense of $8,000 to cover the preparation and submittal of the bid. You are considering five different bid levels. Each level involves a different profit margin, calculated as a percentage above total installation cost (TIC). The expense of the bid is excluded from this calculation, but it is relevant for profitability that it will win the bid at each level being considered. The bids and the probabilities are summarized in the following table.

	Amount of Bid	Probability of Winning
Bid 1	TIC + 5%	0.630
Bid 2	TIC + 10%	0.573
Bid 3	TIC + 15%	0.515
Bid 4	TIC + 20%	0.458
Bid 5	TIC + 25%	0.400

1. What is the optimal bid for your company to make?
2. What is the expected profit associated with the optimal bid?

Reference no: EM133639409

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