Which bid should you submit

Assignment Help Microeconomics
Reference no: EM13880267

On behalf of your company, you are preparing a price bid to supply a fixed quantity of a good to a potential buyer. You are aware that a number of competitors also are eager to obtain the contract. The buyer will select the lowest bid. Your cost is $100,000. If yours is the winning bid, your profit is the difference between your bid and your cost. If not, your profit is zero. You are considering three possible bids:
Bid $110,000; the probability of winning is .9. Bid $130,000; the probability of winning is .5. Bid $160,000; the probability of winning is .2.

a. Assuming your company's aim is to maximize its expected profit, which bid should you submit?

b. In part (a), your cost is $100,000 for certain. Now suppose it is uncertain: either $80,000 or $120,000, with each cost equally likely. Will this fact change your bidding behavior in part (a)? Explain briefly.

c. Suppose it is possible to gain information about the cost so that you will know exactly what the cost will be ($80,000 or $120,000) before submitting a bid. Use a decision tree to find the value of this information.

Reference no: EM13880267

What course of action maximizes its expected profit

Suppose instead that firm B can postpone its R&D decision for six months, by which time it will have learned the court's ruling on its patent. What is its expected profit if

Which age group has the worst accident record

An analyst points out that of 57,051 drivers involved in accidents last year, drivers aged 31 to 55 accounted for 24,265 cases, or some 43 percent of the total-a far greater

Do you expect icahn to go through with his challenge

Losing AOL as a partner would also undermine Google's competitive position - meaning a reduction in its overall profit of $50 million (on top of the foregone $70 million all

Find the buyer''s marginal profit and set it equal to zero

Find the buyer's marginal profit and set it equal to zero. Show that the buyer's optimal price satisfies P = vb - F(P)/f(p), where f(v) = dF(v)/dv is the associated density

What offer should a make to maximize its expected profit

Firm A judges that firm B would accept a 45 percent share with probability .9, a 40 percent share with probability .85, and a 35 percent share with probability .8. What offe

Which of the eight contracts is optimal

With three issues (two outcomes each), there are eight possible contracts. Which contracts are inefficient (i.e., produce worse outcomes for both sides than some other contr

How much pollution should be reduced

Currently, the mill has the legal right to pollute. Can the parties come to a mutually beneficial agreement to reduce pollution? If so, how much pollution should be reduced?

Should firm b insist on 0 percent defects

Firm S supplies inputs to firm B. Because producing the input is quite complicated, some defects are inevitable. Firm S can reduce the rate of defects at a cost. In turn, de


Write a Review

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd