Scitool Company Case

Problem1.2: The SciTool Company specializes in scientific instruments, and

has been invited to make a bid on a government contract. The contract calls

for a certain number of these instruments to be delivered during the coming

year. The bids must be sealed, so that no company knows what the others

are bidding. SciTool estimates that it will cost Rs.5000 to prepare a bid, and

Rs.95000 to supply the instruments if it wins the contract. Therefore, it has to

decide whether to submit a bid at all, and if it decides to submit a bid, then

whether to submit a bid for Rs.115000, or Rs.120000, or Rs.125000. On the basis

of past contracts of this type, SciTool believe that there is a 30%chance that

there will be no competing bids. In case there are competing bids, then it estimates

that the probabilities of the lowest bid being less than Rs.115000 is 0.2,

between Rs.115000 and Rs.120000 is 0.4, between Rs.120000 and Rs.125000 is

0.3, and above Rs.125000 is 0.1. It also estimates that the chance of another

bid being exactly Rs.115000, or Rs.120000, or Rs.125000 is negligible.

a. Write down the entries in the payoff table for SciTool.

b. If SciTool uses the maximin approach to make a decision, what decision

should it take?