1 A consultant knows that it will cost him 10K K represents

1. A consultant knows that it will cost him $10K (K represents thousands of dollars) to fulfill a particular contract. The contract is to be put out for bids, and he believes that the lowest bid, excluding his own, can be represented by a distribution that is uniform between $8K and $20K.

a. What is the probability that the lowest of the other bids will be less than the consultant’s cost estimate of $10K?

b. If the consultant submits a bid of $12K, what is the probability that he will secure the contract?

c. The consultant submits a bid of $12K. What is his expected profit from this strategy?

d. What bid will yield the highest expected profit (can use a guess/check procedure over integer bids (in thousands of dollars) or use calculus)?

Solution