Question

​Bloom's Jeans is searching for new​ suppliers, and Debbie​ Bloom, the​ owner, has narrowed her choices to two sets. Debbie is very concerned about supply​ disruptions, so she has chosen to use three suppliers no matter what. For option​ 1, the suppliers are​ well-established and located in the same country. Debbie calculates the​ "unique-event" risk for each of them to be

3%. She estimates the probability of a nationwide event that would knock out all three suppliers to be 2.3%. For option​ 2, the suppliers are newer but located in three different countries. Debbie calculates the​ "unique-event" risk for each of them to be 21​%. She estimates the​ "super-event" probability that would knock out all three of these suppliers to be 0.3​%. Purchasing and transportation costs would be ​$1,200,000 per year using option 1 and ​$1,210,000 per year using option 2. A total disruption would create an annualized loss of ​$550,000.

​a) The probability that all three suppliers will be disrupted using option 1 is nothing ​(round your response to five decimal​ places).​b) The probability that all three suppliers will be disrupted using option 2 is nothing ​(round your response to five decimal​ places).​c) The total annual purchasing and transportation cost plus expected annualized disruption cost for option 1 is

​(round your response to the nearest whole​ number)

.​d) The total annual purchasing and transportation cost plus expected annualized disruption cost for option 2 is $nothing ​(round your response to the nearest whole​ number).​e) Based on the total annual purchasing and transportation cost plus expected annualized disruption​ cost,

option 1

option 2

seems best.

what is a b c d and show steps

Answer 1

The probability of disruption = Probability of super event + (1-probability of the super event) * Probability of unique event risk ( = Probability of risk ^ 3)

A) Option 1

The probability of disruption in case 1 = 0.023 + (1-0.023) * 0.03^3 = 0.02303

B) Option 2

The probability of disruption in case 2 = 0.003 + (1-0.003) * 0.21^3 = 0.01223

C)  Purchasing and transportation costs per year using option 1 = ​$1,200,000

Loss possible = Probability of loss * 550000=0.02303 * 550000 = $12667

Total cost possible = 1200000 + 12667 = $1212667

D)

Purchasing and transportation costs per year using option 2 =​$1,210,000

Loss possible = Probability of loss * 550000 = 0.01223 * 550000 = $6727

Total cost possible = 1210000 + 6727 = $1216727

So Option 1 is better in terms of cost.