The forecasting staff for the Prizer Corporation has developed a model to predic

Question

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 varyjointly with disposable personal income Y and the population between ages 15and 40, Z, and inversely with the price of the snowmobiles P. Based on pastdata, 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 predictfor 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 this model?

Explanation / Answer

A) Predictfor S=k YZ/P = 100*11000*1200/20000=$66,000

B) If P is reduced to $17,500,

Predictfor S=k YZ/P = 100*11000*1200/17500=$75,428.57 (Approx)

C)

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