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Microsoft® Excel Data Analysis and Business Modeling by Wayne L. Winston

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Chapter 59. Calculating an Optimal Bid

  • How do I simulate a binomial random variable?

  • How can I determine whether a continuous random variable should be modeled as a normal random variable?

  • How can I use simulation to determine the optimal bid for a construction project?

When bidding against competitors on a project, the two major sources of uncertainty are the number of competitors and the bid submitted by each competitor. If you bid too high, you’ll make a lot of money on each project but you’ll get very few projects. If you bid too low, you’ll work on lots of projects but make very little money on each. The optimal bid is somewhere in the middle. Monte Carlo simulation provides a useful tool for determining the bid that maximizes expected profit. ...

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