Bidding on a Missile Program

Essay

Bidding on a Missile Program
Merowak Missiles is proposing to develop its next generation Democratizer Offensive Weapon System II (DOWS II)for the US military.It expects to have to sink $1 billion into R&D and design,spend $0.5 billion building the tools and production facility that are unique to DOWS II production.It houses these in standard factory floor space that costs $1 million.Each missile has a marginal cost of $2,000.The Pentagon is considering ordering 1 million of these missiles.Merowak fears that the Pentagon will ask for a lower price after only half the missiles are produced.How could it keep itself from being victim of holdup?