Maximize the expected profits


A plumbing contractor has the opportunity to bid on a contract to do the plumbing work for a new office building. After reviewing the blueprints and specifications, the contractor estimates that the job will cost $300,000. The possible bids the contractor might make and his estimates of the probability of winning the contract at each bid level are:

Bid Probability Win
$330,000 .90
$350,000 .75
$375,000 .50
$400,000 .25
$425,000 0

What should the contractor bid if he wishes to maximize his expected profits?

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Accounting Basics: Maximize the expected profits
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