A building contractor is preparing a bid on a new construction project. Two othe
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Question
A building contractor is preparing a bid on a new construction project. Two other contractors will be submitting bids for the same project. Based on past bidding practices, bids from the other contractors can be described by the following probability distributions:
If required, round your answers to three decimal places.
If the building contractor submits a bid of $670,000, what is the probability that the building contractor will obtain the bid? Use an Excel worksheet to simulate 1,000 trials of the contract bidding process.
The probability of winning the bid of $670,000 =
The building contractor is also considering bids of 695,000 and $705,000. If the building contractor would like to bid such that the probability of winning the bid is about 0.8, what bid would you recommend? Repeat the simulation process with bids of $695,000 and $705,000 to justify your recommendation.
The probability of winning the bid of $695,000 =
The probability of winning the bid of $705,000 =
The reccomendation would be to choose the bid of $695000
Explanation / Answer
Let, X be the bid by contractor A and that of contractor B be Y.
Given, X~Unifrom(520000,720000)
Y~N(620000,42000^2)
To generate random sample from Y use the code
=NORM.INV(RAND(),620000,42000)
To generate random sample from X use the code
=RANDBETWEEN(520000,720000)
The probability of winning the bid of 670000$ is
=P(X<670000 and Y<670000)
=P(X<670000)P(Y<670000) since X and Y are independent.
=0.747*0.881
= 0.658
The probability of winning the bid of $695,000 =0.838
The probability of winning the bid of $705,000 =0.905
Thus the recomended bid is $695000
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