Chapter 61. 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 your bid is too high, you’ll make a lot of money on each project, but you’ll get very few projects. If your bid is too low, you’ll work on lots of projects, but make very little money on each one. The optimal bid is somewhere in the middle. Monte Carlo simulation is a useful tool for determining the bid that maximizes expected ...

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