Forecasting staff for Prizer Corporation has developed a model to predict sales
ID: 1184913 • Letter: F
Question
Forecasting staff for 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 snomobiles P. Based on past data the best estimate of this relationship is S = k 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 $17,1500? c. How would you go about developing a value for k? d. What are the potential weaknesses of this model?Explanation / Answer
Answer:
1.
S=k y Z/P
Where k has been estimated to equal 100
a. if y =$11,000,z=$1200 and p=$20,000
What value would you predict for S?
S=k (11,000) (1,200)/20,000
S=k (13,200,000/20,000)
S=k (660)
Substitute 100 for k
S=100(660)
S=$66,000
b.
If p is reduced to $17,500
Therefore, S=13,200,000/17,500
S= $754.29
c.
We can develop the value for K through regression line method or using past data.
That it, obtain time series data on s, y and p and use regression technique to estimate k.
d.
Sales in period t are function of variable whose values are unknown prior to period t. Therefore, before we can estimate sales, we need to find yt, = t and pt.
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