Econ 409

1. Hanna Corporation markets a compact microwave oven. In 2010 they sold 23,000 units at $375 each. Per capita disposable income in 2010 was $6,750. Hanna economists have determined that the arc price elasticity for this microwave oven is −1.2.

(a) In 2011 Hanna is planning to lower the price of the microwave oven to $325. Forecast sales volume for 2011 assuming that all other things remain equal.

(b) However, in checking with government economists, Hanna finds that per capita disposable income is expected to rise to $7,000 in 2011. In the past the company has observed an arc income elasticity of +2.5 for microwave ovens. Forecast 2011 sales given that the price is reduced to $325 and that per capita disposable income increases to $7,000. Assume that the price and income effects are independent and additive.

2. Milner Brewing Company experienced the following monthly sales (in thousands of barrels) during 2006:

Jan. Feb. Mar. Apr. May June

100 92 112 108 116 116

(a) Develop 2-month moving average forecasts for March through July.

(b) Develop 4-month moving average forecasts for May through July.

(c) Develop forecasts for February through July using the exponential smoothing method

(with w = .5). Begin by assuming ^Yt+1 = Yt.

3. The Accuweather Corporation manufactures barometers and thermometers for weather forecasters. In an attempt to forecast its future needs for mercury, Accuweather's chief economist estimated average monthly mercury needs as:

N = 500 + 10X

where N = monthly mercury needs (units) and X = time period in months (January 2006 = 0). The following actual and forecast values of mercury needs in the month of November have been recorded:

Year Actual Forecast

2005 456 480

2004 324 360

2003 240 240

What seasonal adjustment factor should the...