Based on Kolesar and Blum (1973). Suppose that a company must service customers lying in an area of A square miles with n warehouses. Kolesar and Blum showed that when the warehouse(s) are located properly, the average distance between a warehouse and a customer is (An)1/2. Assume that it costs the company $60,000 per year to maintain a warehouse and $400,000 to build a warehouse. Also, assume that a $400,000 building cost is equivalent to incurring a cost of $40,000 per year indefinitely. The company fills 160,000 orders per year, and the shipping cost per order is $1 per mile. If the company serves an area of 100 square miles, how many warehouses should it have?
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