Question 17 (1 point) A drug manufacturing company is considering two options Op

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Question 17 (1 point) A drug manufacturing company is considering two options Option 1: Two suppliers. Each has a unique event risk of 3% and probability of "super-event" risk is 1.2%. Option 2: Two suppliers. Each has a unique event risk of 13% and probability of "super-event" risk is 0.2% Find the option which has the greater probability of both suppliers be disrupted and state that probability as your answer. (Note: round your final answer only. Round your final answer to 4 decimal places). Your Answer: Answer

Explanation / Answer

Note that a "Unique Event' is when only one supplier is affected. In this case, the company has 2 suppliers who supply raw materials. We would have a unique event when one of the suppliers goes down.

A super event is when all suppliers go down simultaneously.

Now, the overall risk (probability of n suppliers being affected) is given by the below formula:

p(n) = s + (1-s)un

s: probability of the super event occuring

u: probability of the unique event occuring

n: number of suppliers

Scenario 1: We are given

s = 0.012

u = 0.03

n = 2

p(n) = s + (1-s)un

p(n) = 0.012 + (1 - 0.012) x 0.032

p(n) = 0.012889

Risk in scenario 1: 1.29%

Scenario 2:

Similarly, plugging in the values given:

p(n) = 0.002 + (1 - 0.002) x 0.132

p(n) = 0.01886

Risk for scenario 2: 1.89%

Thus, scenario 2 has a greater probability of both suppliers being disrupted, and the risk is 1.89%

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