Three warehouse lease options

$1.$ Get all warehousing space from

the spot market as needed

$2.$ Sign a three$-$year lease for a fixed

amount of warehouse space and

get additional requirements from

the spot market

$3.$ Sign a flexible lease with a

minimum charge that allows

variable usage of warehouse

space up to a limit$,$ with

additional requirements from the

spot market

$$ Which Option would you pick?

$$ What if

$1.$ Demand can go up by $20\%$ with

p $=0\mathrm{.}5$ or down by $20\%$ with $1$ p $=$

$0\mathrm{.}5$

$2.$ Spot prices can go up by $10\%$ with p

$=0\mathrm{.}5$ or down by $10\%$ with $1$ p $=$

$0\mathrm{.}5$

$3.$ Revenue $=$ $$1\mathrm{.}22$ per unit of demand

$4.$ k $=0\mathrm{.}1$