Firm A is a tech company that specialises in developing scientific instruments for various organisations. Firm A has bee

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Firm A is a tech company that specialises in developing
scientific instruments for various organisations. Firm A has
been invited to make a bid on a government contract. The contract
calls for a specific number of these instruments to be delivered
during the coming year for one of the Government’s office.
The bid must be sealed, so that no company knows what the others
are bidding, and the lowest bid wins the contract. Firm
A estimates that it will cost 5 million to prepare a bid and
another 95 million to supply the instruments if it wins the
contract. Hence, for example, if Firm A wins the bid with the
bidding offer of 120 million, then its net profit will be 20
million (=120-95-5).
On the basis of the past contracts of this type, Firm A believes
that the possible low bids from the competition, if there is any
competition, and the associated probabilities are those
shown below.
Given the above information, Firm A has four strategies: Bid
115, Bid 120, Bid 125, No Bid. In addition, Firm A believes there
is a 30% chance that there will be no competing bids. Develop a
decision tree model that finds the EMV for various bidding
strategies. Find an optimal bidding strategy that maximises Firm
A’s EMV.
Draw a decision tree that represents the above problem. Clearly
indicate all necessary information according to the standard notion
introduced in class. For example, use square and circle to indicate
the decision and chance nodes, respectively. In addition, write
down the corresponding probability and the associated EMVs next to
each branch, whenever applicable.
Solve the problem by using the decision tree constructed in part
(a). Clearly indicate the optimal solution and the resulting
outcome. For calculations, feel free to use excel.