Chapter 15: Lecture 10, Answer kyes of suggested questions

8. a.
Time-Series Weighted Moving Forecast
Week Value Average Forecast Error (Error)2
1 17
2 21
3 19
4 23 19.33 3.67 13.47
5 18 21.33 -3.33 11.09
6 16 19.83 -3.83 14.67
7 20 17.83 2.17 4.71
8 18 18.33 -0.33 0.11
9 22 18.33 3.67 13.47
10 20 20.33 -0.33 0.11
11 15 20.33 -5.33 28.41
12 22 17.83 4.17 17.39
Total 103.43

b. MSE = 103.43 / 9 = 11.49

Prefer the unweighted moving average here; it has a smaller MSE.

c. You could always find a weighted moving average at least as good as the unweighted one. Actually the
unweighted moving average is a special case of the weighted ones where the weights are equal.

13. a.
Value (millions of dollars)

Month

The data appear to follow a horizontal pattern.

 b.
Time-Series 3-Month Moving α = .2
Month Value Average Forecast (Error)2 Forecast (Error)2
1 240
2 350 240.00 12100.00
3 230 262.00 1024.00
4 260 273.33 177.69 255.60 19.36
5 280 280.00 0.00 256.48 553.19
6 320 256.67 4010.69 261.18 3459.79
7 220 286.67 4444.89 272.95 2803.70
8 310 273.33 1344.69 262.36 2269.57
9 240 283.33 1877.49 271.89 1016.97
10 310 256.67 2844.09 265.51 1979.36
11 240 286.67 2178.09 274.41 1184.05
12 230 263.33 1110.89 267.53 1408.50
17,988.52 27,818.49

MSE(3-Month) = 17,988.52 / 9 = 1998.72

MSE(α = .2) = 27,818.49 / 11 = 2528.95

Based on the above MSE values, the 3-month moving averages appears to be superior.
However, exponential smoothing was penalized by including month 2 which was difficult for
any method to forecast. Using only the errors for months 4 to 12, the MSE for exponential
smoothing is:

MSE(α = .2) = 14,694.49 / 9 = 1632.72

Thus, exponential smoothing was better considering months 4 to 12.

c. Using exponential smoothing

= α Y12 + (1 - α) = .20(230) + .80(267.53) = 260

19. a.
Time Series Values

Time Period (t)

 The time series plot shows a linear trend.

b.
b0 119.71
b1 -4.9286
Squared
Observed Forecast Forecast
Period Value Forecast Error Error
1 120.00 114.79 5.21 27.19
2 110.00 109.86 0.14 0.02
3 100.00 104.93 -4.93 24.29
4 96.00 100.00 -4.00 16.00
5 94.00 95.07 -1.07 1.15
6 92.00 90.14 1.86 3.45
7 88.00 85.21 2.79 7.76
8 80.29 Total 79.857143

c.

24. a.
Time Series Value

Period (t)

The time series plot shows a horizontal pattern. But, there is a seasonal pattern in the data. For
instance, in each year the lowest value occurs in quarter 2 and the highest value occurs in
quarter 4.

b. The fitted equation is:

Value = 77.0 - 10.0 Qtr1 - 30.0 Qtr2 - 20.0 Qtr3

c. The quarterly forecasts for next year are as follows:

 Quarter 1 forecast = 77.0 - 10.0(1) - 30.0(0) - 20.0(0) = 67
Quarter 2 forecast = 77.0 - 10.0(0) - 30.0(1) - 20.0(0) = 47
Quarter 3 forecast = 77.0 - 10.0(0) - 30.0(0) - 20.0(1) = 57
Quarter 4 forecast = 77.0 - 10.0(0) - 30.0(0) - 20.0(0) = 77

28. a.
Sales ($1000s)

Period

The time series plot shows both a linear trend and seasonal effects.

b. The fitted regression model is:

Revenue = 70.0 + 10.0 Qtr1 + 105 Qtr2 + 245 Qtr3

Quarter 1 forecast = 70.0 + 10.0(1) + 105(0) + 245(0) = 80

Quarter 2 forecast = 70.0 + 10.0(0) + 105(1) + 245(0) = 175
Quarter 3 forecast = 70.0 + 10.0(0) + 105(0) + 245(1) = 315
Quarter 4 forecast = 70.0 + 10.0(0) + 105(0) + 245(0) = 70

c. The fitted regression model is:

Revenue = - 70.1 + 45.0 Qtr1 + 128 Qtr2 + 257 Qtr3 + 11.7 Period

Quarter 1 forecast = -70.1 + 45.0(1) + 128(0) + 257(0) + 11.7(21) = 221

Quarter 2 forecast = -70.1 + 45.0(0) + 128(1) + 257(0) + 11.7(22) = 315
Quarter 3 forecast = -70.1 + 45.0(0) + 128(0) + 257(1) + 11.7(23) = 456
Quarter 4 forecast = -70.1 + 45.0(0) + 128(0) + 257(0) + 11.7(24) = 211