The Billings Printing Company is preparing to bid for a contract to supply half a million bro¬ chures to a national mail-order company. The firm has calculated its incremental costs to be $50,000. Past experience with this type of contract has resulted in the following schedule, which shows the percentage of wins at each markup rate over incremental cost, for the past three years.

(a) Calculate the expected value of the contribution at each of the bid prices implied by the above markup rates.

(b) Interpolate between these rates to arrive at the markup rate, and bid price, that maximizes expected contribution from the contract.

(c) What assumptions and qualifications underlie your analysis?

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Markup Rate (%) Contracts Won (%) 10 20 30 40 50 2390 94 72 45 18 6