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An apparel company would like to create a portfolio of local suppliers for its new line of dresses. As the suppliers all reside in a
An apparel company would like to create a portfolio of local suppliers for its new line of dresses. As the suppliers all reside in a location prone to flooding and earthquakes, the company believes that the probability of a super-event that might shut down all suppliers at the same time for at least 2 weeks is 0.3%. Such a shutdown would cost the company approximately $2,000,000. The company estimates the unique-event risk for any of the suppliers to be 7%. Assuming that the marginal cost of managing an additional supplier is $15,000 per year, how many suppliers should the company use? Assume that up to three nearly identical local suppliers are available
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