Corecast Contractors has been requested by a municipality to submit a proposal bid for a parking garage contract. In the past, the cost of preparing bids has been about 2 percent of the cost of the job. Corecast project manager Bradford Pitts is considering three possible bids: cost plus 10 percent, cost plus 20 percent, and cost plus 30 percent. Of course, increasing the “ plus percent ” increases the project price, decreasing the likelihood of winning the job. Bradford estimates the likelihood of winning the job as follows:

In all cases, the profit (if the bid is won) will be the bid price minus the proposal-
preparation cost, or 0.02C; the loss (if the bid is not won) will be the proposal-
preparation cost.
Prepare a decision tree for the three options. If Bradford uses the maximum expected profit as the criterion, which bid proposal would he select?

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Bid price P(win) P(lose) P1 C+0.1C 1.1C 0.6 0.4 22 P2 C+0.2C 1.2C 0.4 0.6 P3 C+0.3C = 1.3C 0.2 0.8