Managerial Economics- Chapter 5 & 6 Problem Solution

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Chapter 5 Exercises: The forecasting staff for the Pfizer Corporation has developed a model to predict sales of its air-cushioned –ride snowmobiles. The model specifies that sales S vary jointly with disposable income Y and the population between ages 15 and 40, Z and inversely with the price of the snowmobiles P.Based on past data, the best estimate of this relationship is S=K YZ/P. 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. 5. a. Year | Actual Demand | 5-YearMoving average | 3-YearMoving Average | ExponentialSmoothing(w= 0.9) | Exponential smoothing(w = 0.3) | | | | 2000 | 800 | **** | **** | **** | **** | **** | **** | | 2001 | 925 | **** | **** | 800 | 800 | 125 | 15,625 | | 2002 | 900 | **** | **** | 913 | 838 | -13 | 169 | | 2003 | 1025 | **** | 875 | 901 | 857 | 124 | 15,376 | | 2004 | 1150 | **** | 950 | 1013 | 907 | 137 | 18,769 | | 2005 | 1160 | 960 | 1025 | 1136 | 980 | 24 | 576 | | 2006 | 1200 | 1032 | 1112 | 1158 | 1034 | 42 | 1,764 | | 2007 | 1150 | 1087 | 1170 | 1196 | 1084 | -46 | 2,116 | | 2008 | 1270 | 1137 | 1170 | 1155 | 1104 | 115 | 13,225 | | 2009 | 1290 | 1186 | 1207 | 1259 | 1154 | 31 | 961 | | 2010 | * |

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