THE AMERICO OIL CO. CONSIDERING MAKING A BID FOR A SHALE OIL DEVELOPMENT CONTRACT TO BE AWARDED BY THE FEDERAL GOVERNMENT. THE COMPANY HAS DECIDED TO BID $110M. THE CO. ESTIMATES THAT IT HAS 60% CHANCE OF WINNING THE CONTRACT WITH HIS BID. IF THE CO. WINS THE CONTRACT, IT CAN CHOOSE 1 OF THE 3 METHODS FOR GETTING THE OIL FROM THE SHALE: IT CAN DEVELOP A NEW METHOD FOR OIL EXTRACTION, USE AN EXISTING (INEFFICIENT) PROCESS, OR SUBCON THE PROCESSING OUT TO A NUMBER OF SMALLER COMPANIES ONCE THE SHALE HAS BEEN EXCAVATED. THE RESULTS FROM THESE ALTERNATIVES ARE GIVEN AS FOLLOWS: DEVELOP NEW PROCESS PROBABILITY OUTCOMES PROFIT(M) $600 GREAT SUCCESS 0.30 0.60 300 MODERATE SUCCESS FAILURE 0.10 (100) USE PRESENT PROCESS OUTCOMES PROBABILITY PROFIT(M) GREAT SUCCESS 0.50 $300 0.30 200 MODERATE SUCCESS FAILURE 0.20 (40) SUBCONTRACT PROBABILITY OUTCOMES PROFIT(M) 250 MODERATE SUCCESS 1.00 THE COST OF PREPARING THE CONTACT PROPOSAL IS $2M. IF THE CO. DOES NOT MAKE A BID, IT WILL INVEST IN AN ALTERNATIVE VENTURE WITH A GUARANTEED PROFIT OF $30M. CONSTRUCT A DECISION TREE FOR THIS SITUATION & DETERMINE WHETHER THE CO SHOULD MAKE A BID.
THE AMERICO OIL CO. CONSIDERING MAKING A BID FOR A SHALE OIL DEVELOPMENT CONTRACT TO BE AWARDED BY THE FEDERAL GOVERNMENT. THE COMPANY HAS DECIDED TO BID $110M. THE CO. ESTIMATES THAT IT HAS 60% CHANCE OF WINNING THE CONTRACT WITH HIS BID. IF THE CO. WINS THE CONTRACT, IT CAN CHOOSE 1 OF THE 3 METHODS FOR GETTING THE OIL FROM THE SHALE: IT CAN DEVELOP A NEW METHOD FOR OIL EXTRACTION, USE AN EXISTING (INEFFICIENT) PROCESS, OR SUBCON THE PROCESSING OUT TO A NUMBER OF SMALLER COMPANIES ONCE THE SHALE HAS BEEN EXCAVATED. THE RESULTS FROM THESE ALTERNATIVES ARE GIVEN AS FOLLOWS: DEVELOP NEW PROCESS PROBABILITY OUTCOMES PROFIT(M) $600 GREAT SUCCESS 0.30 0.60 300 MODERATE SUCCESS FAILURE 0.10 (100) USE PRESENT PROCESS OUTCOMES PROBABILITY PROFIT(M) GREAT SUCCESS 0.50 $300 0.30 200 MODERATE SUCCESS FAILURE 0.20 (40) SUBCONTRACT PROBABILITY OUTCOMES PROFIT(M) 250 MODERATE SUCCESS 1.00 THE COST OF PREPARING THE CONTACT PROPOSAL IS $2M. IF THE CO. DOES NOT MAKE A BID, IT WILL INVEST IN AN ALTERNATIVE VENTURE WITH A GUARANTEED PROFIT OF $30M. CONSTRUCT A DECISION TREE FOR THIS SITUATION & DETERMINE WHETHER THE CO SHOULD MAKE A BID.
College Algebra (MindTap Course List)
12th Edition
ISBN:9781305652231
Author:R. David Gustafson, Jeff Hughes
Publisher:R. David Gustafson, Jeff Hughes
Chapter6: Linear Systems
Section6.8: Linear Programming
Problem 5SC: If during the following year it is predicted that each comedy skit will generate 30 thousand and...
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![THE AMERICO OIL CO. CONSIDERING MAKING A BID FOR A SHALE OIL DEVELOPMENT CONTRACT TO BE AWARDED BY THE FEDERAL
GOVERNMENT. THE COMPANY HAS DECIDED TO BID $110M. THE CO. ESTIMATES THAT IT HAS 60% CHANCE OF WINNING
THE CONTRACT WITH HIS BID. IF THE CO. WINS THE CONTRACT, IT CAN CHOOSE 1 OF THE 3 METHODS FOR GETTING THE OIL
FROM THE SHALE: IT CAN DEVELOP A NEW METHOD FOR OIL EXTRACTION, USE AN EXISTING (INEFFICIENT) PROCESS, OR
SUBCON THE PROCESSING OUT TO A NUMBER OF SMALLER COMPANIES ONCE THE SHALE HAS BEEN EXCAVATED. THE RESULTS
FROM THESE ALTERNATIVES ARE GIVEN AS FOLLOWS:
DEVELOP NEW PROCESS
PROBABILITY
OUTCOMES
PROFIT(M)
$600
GREAT SUCCESS
0.30
0.60
300
MODERATE SUCCESS
FAILURE
0.10
(100)
USE PRESENT PROCESS
OUTCOMES
PROBABILITY
PROFIT(M)
GREAT SUCCESS
0.50
$300
0.30
200
MODERATE SUCCESS
FAILURE
0.20
(40)
SUBCONTRACT
PROBABILITY
OUTCOMES
PROFIT(M)
250
MODERATE SUCCESS
1.00
THE COST OF PREPARING THE CONTACT PROPOSAL IS $2M. IF THE CO. DOES NOT MAKE A BID, IT WILL INVEST IN AN
ALTERNATIVE VENTURE WITH A GUARANTEED PROFIT OF $30M. CONSTRUCT A DECISION TREE FOR THIS SITUATION &
DETERMINE WHETHER THE CO SHOULD MAKE A BID.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F23108352-d620-464b-a280-4b5cba84cb6b%2Fb29924a5-383b-408a-ab6f-e111f48123a8%2F41hzulg_processed.png&w=3840&q=75)
Transcribed Image Text:THE AMERICO OIL CO. CONSIDERING MAKING A BID FOR A SHALE OIL DEVELOPMENT CONTRACT TO BE AWARDED BY THE FEDERAL
GOVERNMENT. THE COMPANY HAS DECIDED TO BID $110M. THE CO. ESTIMATES THAT IT HAS 60% CHANCE OF WINNING
THE CONTRACT WITH HIS BID. IF THE CO. WINS THE CONTRACT, IT CAN CHOOSE 1 OF THE 3 METHODS FOR GETTING THE OIL
FROM THE SHALE: IT CAN DEVELOP A NEW METHOD FOR OIL EXTRACTION, USE AN EXISTING (INEFFICIENT) PROCESS, OR
SUBCON THE PROCESSING OUT TO A NUMBER OF SMALLER COMPANIES ONCE THE SHALE HAS BEEN EXCAVATED. THE RESULTS
FROM THESE ALTERNATIVES ARE GIVEN AS FOLLOWS:
DEVELOP NEW PROCESS
PROBABILITY
OUTCOMES
PROFIT(M)
$600
GREAT SUCCESS
0.30
0.60
300
MODERATE SUCCESS
FAILURE
0.10
(100)
USE PRESENT PROCESS
OUTCOMES
PROBABILITY
PROFIT(M)
GREAT SUCCESS
0.50
$300
0.30
200
MODERATE SUCCESS
FAILURE
0.20
(40)
SUBCONTRACT
PROBABILITY
OUTCOMES
PROFIT(M)
250
MODERATE SUCCESS
1.00
THE COST OF PREPARING THE CONTACT PROPOSAL IS $2M. IF THE CO. DOES NOT MAKE A BID, IT WILL INVEST IN AN
ALTERNATIVE VENTURE WITH A GUARANTEED PROFIT OF $30M. CONSTRUCT A DECISION TREE FOR THIS SITUATION &
DETERMINE WHETHER THE CO SHOULD MAKE A BID.
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