Problem:
Philiip Witt believes that the probability in any year of a 'super event' like tornado or earthquake that all suppliers may shut down at the same time for at least 2 weeks at 3%. Total shutdown would cost company apprx $400,000.
He estimates the 'unique event' risk for any of the suppliers to be 5%.
Required:
Question 1) Assuming marginal cost of managing an additional supplier is $15,000 per year how many suppliers should Witt use?
Assume there are up to (3) nearly identical suppliers nearby. Solve the problem and show all work.