BUSI 620

QCT 3

--6.7 points each for a total of 80 points

Salvatore’s chapter 6:

a. Discussion Questions: 1,7, and 15 1. Forecasting for most businesses means gathering historical information and building an estimate or prediction of future events based on the analytical actions of the past. It is important to businesses and other enterprises because it becomes a statistical map for where the organization could go and helps to identify where areas of weakness may be in order to create a new or different pathway to increase performance. There are several types of forecast, qualitative, time series analysis, causal relationship, simulation, and barometric methods. Firms must examine what form of business analytics they need to solve their problems whether it is time data, research data, or trend analysis.

7. Exponential smoothing is the best technique in forecasting as it examines all averages and examines the average of the actual and forecasted values. We have to look at what is required average to determine which smoothing technique is better that will be based on the need of the forecast for the business. Regression Approach would probably be the best to forecast the values of a time series that contains a secular trend as well as a strong seasonal and random variations.

15. It is still useful to pursue forecasting due to the fact that it can provide a directional for time trends or trend analysis that businesses need to learn where their opportunities or threats to the business are. Businesses can measure forecast accuracy and cyclical effect, which could them a little closer to their goals. No matter what company I have worked in finance has always been king, therefore after the forecast are complete finance usually determines what results the business needs to be successful and that usually changes the directional forecast of the trend analysis.

b. Problems: 7 and appendix problems 1 & 3 (pp. 256-257) 7. diffusion index = [(# increasing items) + 1/2*(# stable items)] / (# items) * 100 Stable items are those for which indicators do not change. None of the indicators here are stable, so we will only be looking at the ones that increase. The first month we cannot make any comparisons, so there is no DI. For the second month there will be two increasing indicators, which gives us a DI of 2/3 = 66.7%. For the third month there will be 3 increasing indicators, giving us a DI of 100%.

Appendix Problems 1.
|CPI |3MMAVF |A-F |(A-F)^2 |6MMAVF |A-F |(A-F)^2 |
|161 | | | | | | |
|161.1 | | | | | | |
|161.4 | | | | | | |
|161.8 |161.2 | | | | | |
|162.3 |161.4 | | | | | |
|162.2 |161.8 | | |161.6 | | |
|162.1 |162.1 | | |161.8 | | |
|162.6 |162.2 | | |162.1 | | |
|162.6 |162.3 | | |166.6 | | |
|163.2 |162.4 | | |162.5 | | |
|163.4 |162.8 | | |162.7 | | |
|163.5 |163.1 | | |162.9 | | |
|164.2 |163.4 | | |163.3 | | |
|164.6 |163.7 | | |163.6 | | |
|165 |164.1 | | |164.0 | | |
|166.6 |164.6 | | |164.6 | | |
|166.2 |165.4 | | |165.0 | | |
|165.4 |165.9 | | |165.3 | | |
|165.8 |166.1 | | |165.6 | | |
|166.3 |165.8 | | |165.9 | | |
|167.2 |165.8 | | |166.3 | | |
|167.2 |166.4 | | |166.4 | | |
|167.1 |166.9 | | |166.5 | | |
|167.3 |167.2 | | |166.8 | | |
|167.9 |167.2 | | |167.2 | | |
|170.7 |167.4 | | |167.9 | | |
|170.6 |168.6 | | |168.5 | | |
|171.1 |169.7 | | |169.1 | | |
|171 |170.8 | | |169.8 | | |
|171.7 |170.9 | | |170.5 | | |
|172.2 |171.3 | | |171.2 | | |
|173.3 |171.6 | | |171.7 | | |
|173.8 |172.4 | | |172.2 | | |
|173.5 |173.1 | | |172.6 | | |
|173.5 |173.5 | | |173.0 | | |

3.

Note: 1. Revised P7: Just construct the diffusion index from month 2 to 3. In this problem, we have three leading indicators. The diffusion index from month 1 to 2 is 66.7 (=2/3) because two indicators move up and one moves down (see p. 236) 2. For appendix problem 3, please compare RMSEs for moving average and exponential smoothing forecasts to answer “Is this a better forecast than the moving average?” (see also p. 234)

Salvatore’s chapter 7:

a. Discussion Questions: 3, 11 and 12. 3. The law of diminishing returns is reflected in the postulates that as we use more and more units of the variable input after that you get the marginal product (diminishing returns) from the variable input. The relationship between MP and AP curves and can be used to define the three stages of production for labor. 11. According to the marginal productivity theory, increases in labor productivity should increase wages. Based on technology trends that support the necessary skills required to attain jobs in labor markets that once required unskilled workers now require skills that these workers do not have. As labor productivity increases and wages increase the skills required to attain these jobs will also increase which will decrease the opportunities available to unskilled workers. 12. I do not know if I can answer true or false to this question due to the fact that the answer would be based more on economic environment and the need for the job. Hiring a more qualified and productive worker could produce good work but the possibility of retaining the employee with out advancement opportunities in the near future would be a challenge. The more qualified employee will recognize that he/she is not really challenged in their role and if they are not comfortable or they are a career seeker the turnover rate will be much higher which will mean cost of attrition and wages will be higher. A less qualified and productive worker can be trained and may be challenged in the role and show potential for growth, which will cost less and has the opportunity to have less attrition which may lead to better benefits for the organization from a cost standpoint.

b. Problems: 4, 12, and 13. 4. Ms. Smith should hire workers as long as their marginal revenue product (MRP) exceeds their marginal resource cost (MRC), and until MRP = MRC. MRP = MR x MP = P x MP = $10 x MP and MRC = $40. Please use this information to figure out MP. Workers hired: 0, 1, 2, 3, 4, 5, 6 Total product:0, 12, 22, 30, 36, 40, 42 12.

13. This is false based on the fact that if the Marginal Revenue product exceeds the marginal revenue cost then it pays for the firm to expand the use of the variable input because it will add more total revenue than to its total cost meaning the firms total profits will rise and vice versa.

Note: 1. P4: Ms. Smith should hire workers as long as their marginal revenue product (MRP) exceeds their marginal resource cost (MRC), and until MRP=MRC. MRP=MR x MP = P x MP = $10 x MP (Use information in the problem to calculate MP) MRC=wages=$40. 2. P12(a): Calculate Q when L=1and K=1, and L=2 and K=2, then Compare and answer the question about the returns to scale. 3. P12(b), Given K=1, show the change in Q if L changes from 1 to 2, and 2 to 3, and answer the question about diminishing returns. 4. P13(a), please see figure (7-4) on page 276.