What are the assumptions and limitations of forecast model

Assignment Help Econometrics

Reference no: EM13212594

Demand estimation for brand-name consumer products is made difficult by the fact that managers must rely on proprietary data. There is simply not enough publicly available data, which can be used to estimate demand elasticity for brand-name products and services. Competitors would be delighted to know profit margins across a broad array of competing products so that advertisers, pricing policy, and product development strategy could all be targeted for maximum benefit. Product demand information is valuable and well guarded. To see how the process might be undertaken to better understand product demand conditions, consider the hypothetical example of Mrs. Smyth's Inc., a Chicago based food company. In early 2002, Mrs. Smyth's initiated an empirical estimation of demand for its gourmet frozen fruit pies. The firm is formulating pricing and promotional plans for the coming year, and management is interested in learning how pricing and promotional decisions might affect sales. They have collected quarterly data over two years for six important markets. A regression equation was fit to these data. Qd=b0 + b1P + b2A + b3PX + b4Y + b5Pop + b6T The model produced the following estimation demand coefficients: Intercept: -4.516.291 Price (P): -35.985 Advertising (A): 203.713 Competitor Price (PX): 37.960 Income (Y): 777.051 Population: 0.256 Time (T): 356.047 Use the regression model and 2008-4 data to estimate 2009-1 unit sales in the Atlanta market. (See Excel Spreadsheet) Is this an appropriate procedure? What are the assumptions and limitations of the forecast model? Year-Quarter Unit Sales (Q) Price (CENTS) Advertising Expenditure ($000) Competitors' Price (CENTS) Income ($000) Population (000) Time (T) 2008-4 27,500 550 $10.0 375 $41.5 2,650 8 2008-3 25,000 600 7.5 375 40.5 2,500 7 2008-2 25,000 575 10.0 373 40.0 2,450 6 2008-1 25,000 575 5.0 400 39.5 2,350 5 2007-4 27,500 525 10.0 400 39.5 2,300 4 2007-3 22,500 500 7.5 325 39.0 2,250 3 2007-2 25,000 525 7.5 375 39.5 2,150 2 2007-1 22,500 600 5.0 425 39.5 2,150 1

Reference no: EM13212594

Questions Cloud

When unemployment is below its steady state value : unemployment evolved according to ?U = sE - fU where E is the level of employment and that the steady state unemployment rate was (U/L) = s/(s+f). Show that when unemployment is above its steady state value it tends to fall.

Explain what is the mole fraction of compound in the vapor : If the vapor pressure of the pure liquids at 20.0deg C are 227 torrand 31.7 torr respectively, what will be the total vapor pressure of the mixture? Also, what will be the mole fraction of each compound in the vapor?

What should be the hedge ratio : What are its intrinsic values at stock prices of $45 and $38, respectively, and what should be the hedge ratio and what should be the value of the hedged portfolio at expiration

Define why the element bromine prefers to have its two atoms : Explain why the element bromine prefers to have its two atoms form covalent bonds rather than ionic bonds

What are the assumptions and limitations of forecast model : Demand estimation for brand-name consumer products is made difficult by the fact that managers must rely on proprietary data. There is simply not enough publicly available data, which can be used to estimate demand elasticity for brand-name produc..

Explain solution of chloroform in carbon tetrachloride : A solution of chloroform (CHCL3) in carbon tetrachloride (CCL4) is 1.87 molar chloroform and has a density of 2.93 grams/mL. Calculate

What is the new real exchange rate between uk and japan : Suppose that last year, the nominal exchange rate between the Japanese yen and the British pound was ¥225.0 per £1.0, one unit of Japanese output cost ¥2000, and one unit of British output cost £8.0

The higher melting point than one mole of aluminum nitrate : Explain why one mole of potassium nitrate in a liter of water has a higher melting point than one mole of aluminum nitrate in a liter of

What range of prices do you estimate based on your analysis : What range of prices do you estimate based on your analysis in Reqs b-e and determine the enterprise value of CS and what is the total 2013 net income and interest payments

User Account

All Pages