Question

a construction company has the opportunity to place a bid on two different projects: project g and project h. the research and planning required to place a bid on project g will cost the construction company $4,136.00, but if the companys bid is accepted, it will result in an income of $22,372.00. the companys bid has a 68% probability of being accepted for project g. the research and planning required to place a bid on the project h will cost the construction company $3,136.00, but if the companys bid is accepted, it will result in an income of $21,872.00. the companys bid has a 62% probability of being accepted for project h. suppose the company can only place one bid. which bid should the company choose? a. the construction company should place a bid on either project because the expected value of project g is equal to the expected value of project h. b. the construction company should place a bid on project g because the expected value of project g is greater than the expected value of project h. c. the construction company should place a bid on project h because the expected value of project h is greater than the expected value of project g. d. there is not enough information to determine which bid the company should choose.

Explanation:

Step1: Calculate the expected value for project G

The formula for expected value \(E(X)\) is \(E(X)=p\times(income - cost)+(1 - p)\times(-cost)\). For project G, \(p = 0.68\), \(income=\$22372\), \(cost=\$4136\).

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Step2: Calculate the expected value for project H

For project H, \(p = 0.62\), \(income=\$21872\), \(cost=\$3136\)

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Step3: Compare the expected values

Since \(E(G)=11076.96\) and \(E(H)=10424.64\), and \(11076.96>10424.64\)

Answer:

B. The construction company should place a bid on project G because the expected value of project G is greater than the expected value of project H.