Eco 550 Week 3 Chapter 5 And Chapter 6 Problems

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ECO 550 Week 3 Chapter 5 and Chapter 6 Problems

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Chapter 5

1. The forecasting staff for the Prizer Corporation has developed a model to predict sales of its air-cushioned-ride snowmobiles. The model specifies that sales S vary jointly with disposable personal income Y and the population between ages 15 and 40, Z, and inversely with the price of the snowmoblies P. Based on past data, the best estimate of this relationship is *YZ/P where k has been estimated (with past data) to equal 100.

a. If Y = $11,000, Z = $1,200, and P = $20,000, what value would you predict for S ?

b. What happens if P is reduced to $17,500?

c. How would you go about developing a value for k?

d. What are the potential weaknesses of his model?

5. A firm experienced the demand shown in the following table.

year ------ actual demand---- 5 yr moving avg --- 3 yr moving avg-- exponential smoothing -- exponential smoothing ( ) --- ( ) _________________________________________________________________________________________________ 2000 | 800 | xxxx | xxxx | xxxx | xxxxx 2001 | 925 | xxxx | xxxx | _____ | __________ 2002 | 900 | xxxx | xxxx | ______ | __________ 2003 | 1025 | xxxx | _____ | ________ | ___________ 2004 | 1150 | xxxx | ______ | _________ | ____________ 2005 | 1160 | _____ | _______ | __________ | _____________ 2006 | 1200 | _______ | _______ | __________ | ____________ 2007 | 1150 | _______ | ________ | ___________ | ____________ 2008 | 1270 | ________ | ________ | ___________ | ____________ 2009 | 1290 | _________ | ________ | ____________ | ___________ 2010 | * | _________ | _________ | ____________ | ____________ Unknown future value to be forecast.

a. Fill in the table by preparing forecasts based on a five- year moving average, a three- year moving average, and exponential smoothing( with a and a ). Note: The exponential smoothing forecasts may be begun by assuming Yt+

b. Using the forecasts from 2005 through 2009, compare the accuracy of each of the forecasting methods based on the RMSE criterion.

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