Your company, Canino Construction, has decided to bid on a government contract to build a bridge 50 miles from the city during the coming winter. The bridge is to be of standard govern¬ ment design and hence should contain no unexpected in-process costs. Your present capacity utilization rate allows sufficient scope to undertake the contract if awarded. You calculate your incremental costs to be $268,000 and your fully allocated costs to be $440,000. You expect three other companies to bid on this contract, and you have assembled the following information concerning these companies:

Your usual bidding practice is to add between 60 percent and 80 percent to your incre¬ mental costs, depending upon capacity utilization rate and other factors. What price will you bid

(a) if you must win the contract or

(b) if you wish to maximize the expected value of the contract? Defend your answers with discussion, making any assumptions you feel are supported by the information given or are otherwise reasonable.

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Consideration Capacity utilization Goodwill consideration Rival A Near full Very concerned Rival B Rival C Sufficient slack Moderately concerned Very low Not concerned Type of plant Previous bidding pattern Cost structure Aesthetic factors Political factors Small and inefficient Medium-sized and efficient Large and efficient Incremental cost plus Full cost plus 8-12% Full cost plus 10- 35-50% Incremental costs Similar cost structure exceed yours by to yours about 10% Likes to utilize capacity fully Decision maker has friends in Doesn't like "dirty" jobs Decision maker is seeking a new job 15% Incremental costs 20% lower but full costs similar to yours Likes creative projects None known government