Hey guys, I am having trouble figuring this problem out if you could shed any light on it then that would be greatly appreciated!
Jodie is considering bidding for the rights to three government supply contracts, |
one in April, one in May, and one in June. She must bid for all three right simultaneously |
(she cannot choose to only bid for one or two of them), but even if she wins one, she is |
not guaranteed to win the others. Preparing the paperwork for a bid like this will cost |
$100,000 which must be paid whether she wins the contracts or not. Of course, if she |
decides not to bid after all, she pays nothing. To determine whether bidding is likely to |
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She knows from past experience that, if she wins the April contract, the likelihood of winning |
the May contract is | 72.00% | , and, if she wins both the April and May contracts, |
the likelihood of winning the June contract is | 82.00% | . If, on the other hand, Jodie |
doesn't win the April contract, then there is a | 62.00% | chance that she will also lose the May |
contract. And, if she loses both the April and May contracts, the likelihood of losing the June |
contract will be | 82.00% | . The overall chance of winning the June contract is |
44.1280% | . However, if she wins the April contract, the chance of winning the June contract |
contract would be | 71.920% | . | | | | |
| | | | | | | |
Each contract will be worth | $64,000.00 | . If the chance that Jodie only wins One (1) of |
the contracts (i.e. either the April or the May or the June but neither of the others) is |
26.8800% | then… | What is Jodie's expected value from bidding ? | |