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In: Statistics and Probability

Phillip​ Witt, president of Witt Input​ Devices, wishes to create a portfolio of local suppliers for...

Phillip​ Witt, president of Witt Input​ Devices, wishes to create a portfolio of local suppliers for his new line of keyboards. As the suppliers all reside in a location prone to​ hurricanes, tornadoes,​ flooding, and​ earthquakes, Phillip believes that the probability in any year of a​ "super-event" that might shut down all suppliers at the same time at least 2 weeks is 4​%. Such a total shutdown would cost the company approximately ​$520 comma 000. He estimates the​ "unique-event" risk for any of the suppliers to be 7​%. Assuming that the marginal cost of managing an additional supplier is ​$14 comma 800 per​ year, how many suppliers should Witt Input Devices​ use? Assume that up to three nearly identical local suppliers are available.

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