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Question and Answer Managerial Economics (UM21MB643A) Unit 5: Demand Forecasting

(i) The regression equation for monthly sales based on intelligence test scores is: Monthly sales = 5 + 0.75*Intelligence test score. (ii) The expected monthly sales for salesperson J (with an intelligence score of 65) is 53.75 lakh rupees. The expected monthly sales for salesperson K (with an intelligence score of 80) is 65 lakh rupees. Using the housing price index data from 1986 to 1997, the 1998 forecast using 3-year and 5-year moving averages are 153.3333 and 146.2 respectively. The 3-year moving average is a better estimate because it has a lower RMSE (root mean squared error) of 17

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71 views3 pages

Question and Answer Managerial Economics (UM21MB643A) Unit 5: Demand Forecasting

(i) The regression equation for monthly sales based on intelligence test scores is: Monthly sales = 5 + 0.75*Intelligence test score. (ii) The expected monthly sales for salesperson J (with an intelligence score of 65) is 53.75 lakh rupees. The expected monthly sales for salesperson K (with an intelligence score of 80) is 65 lakh rupees. Using the housing price index data from 1986 to 1997, the 1998 forecast using 3-year and 5-year moving averages are 153.3333 and 146.2 respectively. The 3-year moving average is a better estimate because it has a lower RMSE (root mean squared error) of 17

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Prajwal
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Question and Answer

Managerial Economics (UM21MB643A)

Unit 5: Demand Forecasting

Q7. The following table is related to the scores obtained by 9 salespersons of a 8M


software company in an intelligence test. Their monthly sales is given in lakh
rupees as follows:

Salespersons A B C D E F G H I
Intelligence test 50 60 50 60 80 50 80 40 70
score
Monthly Sales 30 60 40 50 60 30 70 50 60

(i) Obtain the regression equation of sales based on intelligence test scores
of the salespersons.

(ii) Two salespersons ‘J’ and ‘K’ were absent; their intelligence scores
obtained later was 65 and 80 respectively. What would be their expected
monthly sales?

Answer:

(i) Regression output:

Regression Statistics
Multiple R 0.75
R Square 0.5625
Adjusted R
Square 0.5
Standard
Error 10
Observations 9

Standard
Coefficients Error t Stat P-value
Intercept 5 15.36590743 0.325396 0.754392
X Variable
1 0.75 0.25 3 0.019942

1
Regression equation is

Monthly sales = 5 + 0.75*Intelligence test score

(ii) Expected monthly sales of


Salesperson J = 53.75
Salesperson K = 65

Q8. Using the index (with 1985 = 100) on housing price starts in India per year 8M
from 1986 to 1997 given in the table below, forecast the index for 1998 using
the three- year and five years moving average. Which estimate is better and
why?

House price House price


Year Year
index index
1986 116 1992 113
1987 122 1993 125
1988 121 1994 146
1989 121 1995 142
1990 111 1996 156
1991 97 1997 162

Answer:

3 year- 5 year-
Squared 5 squared
Actual 3 year Error Error year Error error
1986 116
1987 122
1988 121
1989 121 119.6667 1.333333 1.777777778
1990 111 121.3333 -10.3333 106.7777778
1991 97 117.6667 -20.6667 427.1111111 118.2 -21.2 449.44
1992 113 109.6667 3.333333 11.11111111 114.4 -1.4 1.96
1993 125 107 18 324 112.6 12.4 153.76
1994 146 111.6667 34.33333 1178.777778 113.4 32.6 1062.76
1995 142 128 14 196 118.4 23.6 556.96

2
1996 156 137.6667 18.33333 336.1111111 124.6 31.4 985.96
1997 162 148 14 196 136.4 25.6 655.36
-
1998 153.3333 -153.333 23511.11111 146.2 146.2 21374.44

1998 Forecast 153.3333 3 Year moving average


146.2 5 year moving average
308.6296296 552.3143
RMSE 17.56785786 RMSE 23.50137

Three years moving average estimate is better. Because, the RMSE value of
3 years moving average is lower than the RMSE value of 5 years moving
average.

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