Chapter 5
1. The forecasting staff for the pizzer Corporation has developed a model to predict sales of its air-cushioned ride snowmobiles. The mobiles 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 a sownmpbiles p. Based on past data the best estimate of this relationship is
S=K YZ
P
Where K has been estimate (with past date ) to equal 100.
a. If Y =$11,000, Z=$1,200 and P=$20,000 what value would you predict for S?
b. What happen 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 this model?
5. A firm experienced the demand shown in the following table
Year : Actual Demand : 5Year moving Average : 3Year moving Average: Exponential Smoothing (w=0.9) : Exponential Smoothing (W=0.3)
2000 800 xxxxx xxxxx xxxxx xxxxx
2001 925 xxxxx xxxxx _ _
2002 900 xxxxx xxxxx _ _
2003 1025 xxxxx _ _ _
2004 1150 xxxxx _ _ _
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 W=0.9 and a W=0.3) note: The exponential smoothing forecasts may be begun by assuming
Y t +1=Yt.
b. Using the forecasts from 2005 through 2009, compare the accuracy of each of the forecasting methods based on the RMSE critetion.
c. Which forecast would you have used for 2010? Why?
6. The economic analysis division of Mapco Enterprise has estimated the demand function for its line of weed trimmers as
Qp= 18,000 + 0.4N -350Pm + 90Ps
Where N= numbers of new homes completed in the primary market area
Pm=price of the Mapco Trimmer
Ps = price of its competitors surefire trimmer
In 2010, 15,000 new homes are expected to be completed in the primary market area. Mapco plans to charge $5 for its tirmmer. The Surefire trimmer is expected to sell for $55.
a. What sales are forecast for 2010 under this condition?
b. If its competitors cut the price of the Surefire trimmer to $50, what effect would these have on Mapco sales?
c. What effect would a 30 percent reduction in the number of new homes completed have on Mapco’s sales (ignore the impact of the price cut of the Surefire trimmer)?
9. Saving Mart ( a chain of discount department store) sells patio and lawn furniture. Sales are seasonal, with higher sales during the spring and summer quarters and lower sales during the fall and winter quarters. The company developed the following quarterly sales forecasting model
Yt=8.25+0.125t-2.75D1t + 0.25D2t + 3.50D3T
Where Yt= predicted sales ($million) in quarter t
8.25= quarterly sales ($ million) when t=0
t= time period (quarterly) where the fourth quarterly of 2002=0, first quarter of 2003=1, second quarter of 2003=2…..
D1t= (1 for first quarter observations
( 0 otherwise)
D2t = ( 1 for second – quarter observations
( 0 otherwise )
D3t = ( 1 for third- quarter observations
( 0 otherwise)
Forecast Saving Marts sales of patio and lawn furniture for each quarter of 2010
Chapter 6
2. If the U.s dollar were to appreciate substantially, what steps could a domestic manufacture like Cummins Engine Co. of Columbus Indiana, take in advance to reduce the effect of the exchange rate fluctuation on company profitability?
7. If Boeing’s dollar aircraft price increase 20 percent and the yen/dollar exchange rate decline 15 percent, what effective price increase is facing Japan Air lines for the purchase of Boeing 747? Would Boeing margin likely rise or fall of the yen then depreciated and competitors price were unchanged? Why?
9. If unit labor cost in Spain and Portugal rise, but unti labor cost in Germany decline and other produce price remain unchanged, what effect should these factors, by themselves, have on export trade and why?
10. What three factors determine whether two economies with separate fiscal and monetary authorities should form a currency union? Give an illustration of each factor using NAFTA economies.
