Question

Johnson Company is preparing a bid on a new construction project. Two other contractors will be submitting bids for the same project.

Based on past bidding practices, bids from other contractors can be described by the following probability distributions:

Contractor A: Uniform probability distribution between $500,000 and $1,000,000.

Contractor B: Normal probability distribution with a mean bid of $700,000 and a standard deviation of $100,000.

a. If Johnson Company submits a bid of $750,000, what is the probability Butler will obtain the bid. Simulate 1000 trials of the contract bidding process. Note: Johnson's bid must be less than BOTH A and B.

Answer 1

Using Excel we will use the functions

• 500000+(1000000-50000)*RAND() to simulate the bids by contractor A
• NORM.INV(RAND(),700000,100000) to simulate bids by contractor B

the probability Johnson will obtain the bid is same as the probability that bids of Contractor A and B are less than 750000

= (number of times the bids of Contractor A and B are less than 750000 )/(total number of simulations)

Prepare the following

copy the rows to create 1000 trials. Paste as values to avoid changes to the the simulated values

Get this

ans: the probability that Johnson will obtain the bid is 0.153