Machado Construction Is Considering Two Options for Its Supplier Portfolio

question 1

Essay

Machado Construction is considering two options for its supplier portfolio. Option 1 uses two local suppliers. Each has a "unique-event" risk of 8%, and the probability of a "super-even" that would disable both at the same time is estimated to be 2.5%. Option 2 uses two suppliers located in different countries. Each has a "unique-event" risk of 18%, and the probability of a "super-event" that would disable both at the same time is estimated to be 1.2%.
(a) What is the probability that both suppliers will be disrupted using option 1?
(b) What is the probability that both suppliers will be disrupted using option 2?
(c) Which option would provide the lowest risk of a total shutdown?

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Definitions:

Nonattainment Area

A geographical area that does not meet federally established ambient air quality standards.

Plastics Factory

A manufacturing facility where plastic materials are processed and shaped into products.

Emission Rates

The quantity of pollutants released into the atmosphere by a specific source over a given period.

Innocent Landowner

A property owner who is not responsible for any environmental damage caused by previous owners.