Problem:
Philiip Witt wishes to create a portfolio for his local suppilers for his new line of keyboards. All his suppliers reside in hurricane and tornado prone areas. He believes that the probability in any year of a 'super event' like tornado or hurricane that all suppliers may shut down at the same time for at least 2 weeks at 3%. Such a total shutdown would cost company approximately $400,000. He estimates the 'unique event' risk for any of the suppliers to be 5%.
Required:
Question 1) Assuming marginal cost of managing the additional supplier is $15,000 per year how many suppliers must Witt use?
Suppose there are up to (3) nearly identical suppliers nearby. Solve the problem and show all work.