Consider the following case.1 There are certain rather expensive items (some costing over $ 100; 000 each) known as insurance spares which are generally procured at the time a new class of ship is under construction. These spares are bought even though it is known that it is very unlikely that any of them will ever be needed and that they cannot be used on any ship except of that particular class. They are procured in order to provide insurance against the rather serious loss which would be suffered if one of these spares were not available when needed. Also, the initial procurement of these spares is intended to be the only procurement during the lifetime of the ships of that class because it is extremely difficult and costly to procure these spares at a later time. Suppose that spares cost $ 100; 000 each and that a loss of $ 10; 000; 000 is suffered for each spare that is needed when there is none available in stock. Further, suppose the following probabilities that spares will be needed as replacements during the life term of the class of ship discussed fðrÞ ¼ 8 >< >: 0 1 2 3 45 or more 0:9488 0:0400 0:0100 0:0010 0:00020 0:0000 How many parts should be procured? In this exercise apply Model I.