Company A is bidding on a project it estimates to cost $400,000 to perform. Using a 25% markup, it will charge $500,000 creating a profit of $100,000. It has been learned, however, that Company B is considering bidding on the project as well, and they figure it will be a bid of about $470,000. Company A really wants this project, so they are considering a bid with a 15% markup to $460,000 to create a profit of $60,000 and ensure they will win the bid even if Company B does submit one.
I understand there are 2 decision alternatives: $500,000 bid and $460,000 along with 2 outcomes for each: win bid or lose bid. I know the profit payoff for win is $100,000 and $60,000 respectively. Is the profit payoff if they lose the bid $0 for each or $-100,000 and $-60,000 (opportunity cost)?
I understand there are 2 decision alternatives: $500,000 bid and $460,000 along with 2 outcomes for each: win bid or lose bid. I know the profit payoff for win is $100,000 and $60,000 respectively. Is the profit payoff if they lose the bid $0 for each or $-100,000 and $-60,000 (opportunity cost)?