Chapter 7: DEMAND ESTIMATION AND FORECASTING

Multiple Choice

7-1 Demand equations derived from actual market data are

a. empirical demand functions.

b. never estimated using consumer interviews.

c. generally estimated using regression analysis.

d. both a and c

e. all of the above

Difficulty: 01 Easy

Topic: Direct Methods of Demand Estimation

AACSB: Reflective Thinking

Blooms: Remember

Learning Objective: 07-01

7-2 A representative sample

a. eliminates the problem of response bias.

b. reflects the characteristics of the population.

c. is frequently a random sample.

d. both b and c

e. all of the above

Difficulty: 01 Easy

Topic: Direct Methods of Demand Estimation

AACSB: Reflective Thinking

Blooms: Understand

Learning Objective: 07-01

7-3 One problem with consumer interviews is that

a. the sample may not be a representative sample.

b. response bias.

c. interviews allow for rapid turnaround.

d. both a and b

e. all of the above

Difficulty: 01 Easy

Topic: Direct Methods of Demand Estimation

AACSB: Reflective Thinking

Blooms: Understand

Learning Objective: 07-01

7-4 The estimated demand for a good is

where Q is the quantity demanded of the good, P is the price of the good, M is income, and is the price of related good R. The coefficient on P

a. does not have the expected sign.

b. is negative as expected.

c. should have the same sign as the coefficient on .

d. should not be greater than one (in absolute value).

e. both b and d

Difficulty: 02 Medium

Topic: Specification of the Empirical Demand Function

AACSB: Analytical Thinking

Blooms: Apply

Learning Objective: 07-02

7-5 The estimated demand for a good is

where Q is the quantity demanded of the good, P is the price of the good, M is income, and is the price of related good R. The good is

a. an inferior good since the coefficient on is positive.

b. a normal good since the coefficient on is positive.

c. an inferior good since the coefficient on M is greater than one.

d. a normal good since the coefficient on M is positive.

e. none of the above

Difficulty: 02 Medium

Topic: Specification of the Empirical Demand Function

AACSB: Analytical Thinking

Blooms: Apply

Learning Objective: 07-02

7-6 The estimated demand for a good is

where Q is the quantity demanded of the good, P is the price of the good, M is income, and is the price of related good R. This good and the related good R are

a. complements since the coefficient on M is positive.

b. substitutes since the coefficient on M is positive.

c. complements since the coefficient on is positive.

d. substitutes since the coefficient on is positive.

Difficulty: 02 Medium

Topic: Specification of the Empirical Demand Function

AACSB: Analytical Thinking

Blooms: Apply

Learning Objective: 07-02

7-7 The estimated demand for a good is

where Q is the quantity demanded of the good, P is the price of the good, M is income, and is the price of related good R. If income decreases by $1,000, all else constant, quantity demanded will ________ by _________ units.

a. decrease; 320 units

b. increase; 3.2 units

c. decrease; 1200 units

d. increase; 500 units

e. decrease; 500 units

Difficulty: 02 Medium

Topic: Specification of the Empirical Demand Function

AACSB: Analytical Thinking

Blooms: Apply

Learning Objective: 07-02

7-8 The estimated demand for a good is

where Q is the quantity demanded of the good, P is the price of the good, M is income, and is the price of related good R. If the price of the good falls by $4, the quantity demanded will ________ by ________ units.

a. increase; 5 units

b. increase; 20 units

c. increase; 50 units

d. increase; 48 units

e. decrease; 12 units

Difficulty: 02 Medium

Topic: Specification of the Empirical Demand Function

AACSB: Analytical Thinking

Blooms: Apply

Learning Objective: 07-02

7-9 The estimated demand for a good is

where Q is the quantity demanded of the good, P is the price of the good, M is income, and is the price of related good R. The coefficient on P

a. violates the law of demand.

b. is negative as dictated by the law of demand.

c. should not be greater than one (in absolute value).

d. should have the same sign as the coefficient on .

e. both c and d

Difficulty: 01 Easy

Topic: Specification of the Empirical Demand Function

AACSB: Reflective Thinking

Blooms: Understand

Learning Objective: 07-02

7-10 The estimated demand for a good is

where Q is the quantity demanded of the good, P is the price of the good, M is income, and is the price of related good R. The good is

a. an inferior good since the coefficient on is negative.

b. a normal good since the coefficient on is negative.

c. a normal good since the coefficient on M is greater than one (in absolute value).

d. an inferior good since the coefficient on M is negative.

e. none of the above

Difficulty: 02 Medium

Topic: Specification of the Empirical Demand Function

AACSB: Reflective Thinking

Blooms: Understand

Learning Objective: 07-02

7-11 The estimated demand for a good is

where Q is the quantity demanded of the good, P is the price of the good, M is income, and is the price of related good R. This good and good R are

a. complements since the coefficient on M is negative.

b. substitutes since the coefficient on M is negative.

c. complements since the coefficient on is negative.

d. substitutes since the coefficient on is negative.

e. none of the above

Difficulty: 02 Medium

Topic: Specification of the Empirical Demand Function

AACSB: Reflective Thinking

Blooms: Understand

Learning Objective: 07-02

7-12 The estimated demand for a good is

where Q is the quantity demanded of the good, P is the price of the good, M is income, and is the price of related good R. If income decreases by $2,000, all else constant, quantity demanded will ________ by _________ units.

a. increase; 1.30 units

b. decrease; 6.5 units

c. increase; 1,300 units

d. decrease; 65 units

Difficulty: 02 Medium

Topic: Specification of the Empirical Demand Function

AACSB: Analytical Thinking

Blooms: Apply

Learning Objective: 07-02

7-13 The estimated demand for a good is

where Q is the quantity demanded of the good, P is the price of the good, M is income, and is the price of related good R. If the price of the good rises by $10, all else constant, the quantity demanded will ________ by ________ units.

a. increase; 16 units

b. decrease; 160 units

c. decrease; 1.5 units

d. increase; 150 units

Difficulty: 02 Medium

Topic: Specification of the Empirical Demand Function

AACSB: Analytical Thinking

Blooms: Apply

Learning Objective: 07-02

7-14 If demand is estimated using the empirical specification, then an equivalent expression for demand is

a. .

b. .

c. .

d. .

e. none of the above

Difficulty: 03 Hard

Topic: Specification of the Empirical Demand Function

AACSB: Reflective Thinking

Blooms: Apply

Learning Objective: 07-02

7-15 Possible problems with consumer interviews include:

a. a non-random sample

b. the identification problem

c. response bias

d. both a and b

e. both a and c

Difficulty: 02 Medium

Topic: Direct Methods of Demand Estimation

AACSB: Reflective Thinking

Blooms: Understand

Learning Objective: 07-01

7-16 For a linear demand function, , the income elasticity is

a. c.

b. c(M/Q).

c. c(Q/M).

d. −c.

e. −c(Q/).

Difficulty: 02 Medium

Topic: Specification of the Empirical Demand Function

AACSB: Reflective Thinking

Blooms: Understand

Learning Objective: 07-02

7-17 For a nonlinear demand function of the form, , the estimated cross-price elasticity of demand is

a. d.

b. −d.

c. d(/P).

d. −d(P/).

e. d(Q/).

Difficulty: 02 Medium

Topic: Specification of the Empirical Demand Function

AACSB: Reflective Thinking

Blooms: Understand

Learning Objective: 07-02

7-18 Build-Right Concrete Products produces specialty cement used in construction of highways. Build-Right is a price-setting firm and estimates the demand for its cement by the State Highway Department using a demand function in the nonlinear form:

where Q = yards of cement demanded monthly, P = the price of Build-Right’s cement per yard, M = state tax revenues per capita, and = the price of asphalt per yard. The manager at Build-Right transforms the nonlinear relation into a linear relation for estimation. The estimation results are presented below:

Given the above, the estimated demand for cement is

a. elastic because = −4.0.

b. elastic because = −2.0.

c. elastic because = −1.5.

d. inelastic because = −0.32.

e. inelastic because = −0.8.

Difficulty: 02 Medium

Topic: Specification of the Empirical Demand Function

AACSB: Analytical Thinking

Blooms: Apply

Learning Objective: 07-02

7-19 Build-Right Concrete Products produces specialty cement used in construction of highways. Build-Right is a price-setting firm and estimates the demand for its cement by the State Highway Department using a demand function in the nonlinear form:

where Q = yards of cement demanded monthly, P = the price of Build-Right’s cement per yard, M = state tax revenues per capita, and = the price of asphalt per yard. The manager at Build-Right transforms the nonlinear relation into a linear relation for estimation. The estimation results are presented below:

Given the above, at the 1 percent level of significance, the number of degrees of freedom for a t−test is _____, and the critical value of the t−statistic is ________. Only parameter estimate(s) ________ is (are) NOT statistically significant at the 1 percent level of significance.

a. 30; 2.457;

b. 30; 2.750;

c. 34; 2.042;

d. 34; 2.042, and

Difficulty: 03 Hard

Topic: Specification of the Empirical Demand Function

AACSB: Reflective Thinking

Blooms: Apply

Learning Objective: 07-02

7-20 Build-Right Concrete Products produces specialty cement used in construction of highways. Build-Right is a price-setting firm and estimates the demand for its cement by the State Highway Department using a demand function in the nonlinear form:

where Q = yards of cement demanded monthly, P = the price of Build-Right’s cement per yard, M = state tax revenues per capita, and = the price of asphalt per yard. The manager at Build-Right transforms the nonlinear relation into a linear relation for estimation. The estimation results are presented below:

Given the above, if tax revenue per capita (M) increases 5%, the estimated quantity of cement demanded will

a. increase by less than 1%.

b. increase more than 1% but less than 5%.

c. increase more than 5% but less than 10%.

d. increase more than 10%.

Difficulty: 02 Medium

Topic: Specification of the Empirical Demand Function

AACSB: Reflective Thinking

Blooms: Understand

Learning Objective: 07-02

7-21 Build-Right Concrete Products produces specialty cement used in construction of highways. Build-Right is a price-setting firm and estimates the demand for its cement by the State Highway Department using a demand function in the nonlinear form:

where Q = yards of cement demanded monthly, P = the price of Build-Right’s cement per yard, M = state tax revenues per capita, and = the price of asphalt per yard. The manager at Build-Right transforms the nonlinear relation into a linear relation for estimation. The estimation results are presented below:

Given the above, the estimated cross-price elasticity of demand for cement relative to the price of asphalt is

a. 0.3

b. 0.6

c. 1.2

d. 3.0

e. none of the above

Difficulty: 02 Medium

Topic: Specification of the Empirical Demand Function

AACSB: Reflective Thinking

Blooms: Understand

Learning Objective: 07-02

7-22 Build-Right Concrete Products produces specialty cement used in construction of highways. Build-Right is a price-setting firm and estimates the demand for its cement by the State Highway Department using a demand function in the nonlinear form:

where Q = yards of cement demanded monthly, P = the price of Build-Right’s cement per yard, M = state tax revenues per capita, and = the price of asphalt per yard. The manager at Build-Right transforms the nonlinear relation into a linear relation for estimation. The estimation results are presented below:

Given the above, if the price of asphalt () decreases 20%, the estimated quantity of cement demanded will:

a. increase 12%

b. increase 6%

c. increase 1.2%

d. decrease 12%.

e. decrease 1.2%.

Difficulty: 02 Medium

Topic: Specification of the Empirical Demand Function

AACSB: Reflective Thinking

Blooms: Understand

Learning Objective: 07-02

7-23 Build-Right Concrete Products produces specialty cement used in construction of highways. Build-Right is a price-setting firm and estimates the demand for its cement by the State Highway Department using a demand function in the nonlinear form:

where Q = yards of cement demanded monthly, P = the price of Build-Right’s cement per yard, M = state tax revenues per capita, and = the price of asphalt per yard. The manager at Build-Right transforms the nonlinear relation into a linear relation for estimation. The estimation results are presented below:

Given the above, if Build-Right decides to charge the State Highway Department $55 per yard for its cement when tax revenues per capita are $3,200 and the price of asphalt is $35 per yard, the expected quantity demanded is

a. 1,000 yards of cement.

b. 2,000 yards of cement.

c. 4,000 yards of cement.

d. 6,000 yards of cement.

e. 8,000 yards of cement.

Difficulty: 02 Medium

Topic: Specification of the Empirical Demand Function

AACSB: Reflective Thinking

Blooms: Understand

Learning Objective: 07-02

7-24 The estimated demand for a good X is, where = units of the good, P = price of the good, M = income, and = price of related good Z. All parameter estimates are statistically significant. Which of the following statements is correct?

a. X is a normal good.

b. X is an inferior good.

c. X and Z are substitutes.

1. X and Z are complements.
2. both b and c

Difficulty: 02 Medium

Topic: Specification of the Empirical Demand Function

AACSB: Reflective Thinking

Blooms: Understand

Learning Objective: 07-02

7-25 The following linear demand specification is estimated for Conlan Enterprises, a price-setting firm:

where Q is the quantity demanded of the product Conlan Enterprises sells, P is the price of that product, M is income, and is the price of a related product. The results of the estimation are presented below:

Given the above, at the 1% level of significance, the critical value of the t−statistic used by Conlan to test for statistical significance has _____ degrees of freedom and is equal to ________.

a. 32; 0.7984

b. 32; 36.14

c. 32; 4.57

d. 30; 2.750

e. 28; 2.763

Difficulty: 01 Easy

Topic: Specification of the Empirical Demand Function

AACSB: Reflective Thinking

Blooms: Understand

Learning Objective: 07-02

7-27 The following linear demand specification is estimated for Conlan Enterprises, a price-setting firm:

where Q is the quantity demanded of the product Conlan Enterprises sells, P is the price of that product, M is income, and is the price of a related product. The results of the estimation are presented below:

Given the above, at the 1% level of significance, which estimates are statistically significant?

a. All are statistically significant

b. All but are statistically significant

c. Only are statistically significant

d. Only is statistically significant

1. All but are statistically significant

Difficulty: 01 Easy

Topic: Specification of the Empirical Demand Function

AACSB: Reflective Thinking

Blooms: Understand

Learning Objective: 07-02

7-28 The following linear demand specification is estimated for Conlan Enterprises, a price-setting firm:

where Q is the quantity demanded of the product Conlan Enterprises sells, P is the price of that product, M is income, and is the price of a related product. The results of the estimation are presented below:

Given the above, based upon the parameter estimates in the above table

a. this good is a normal good.

b. the related good is a substitute.

c. the related good is a complement.

d. a and b

e. a and c

Difficulty: 02 Medium

Topic: Specification of the Empirical Demand Function

AACSB: Analytical Thinking

Blooms: Apply

Learning Objective: 07-02

7-29 The following linear demand specification is estimated for Conlan Enterprises, a price-setting firm:

where Q is the quantity demanded of the product Conlan Enterprises sells, P is the price of that product, M is income, and is the price of a related product. The results of the estimation are presented below:

Assume that the income is $10,000, the price of the related good is $40, and Conlan chooses to set the price of this product at $30. At the prices and income given above, Conlan can expect to sell _________units.

a. 342

b. 600

c. 724

d. 864

e. 872

Difficulty: 01 Easy

Topic: Specification of the Empirical Demand Function

AACSB: Reflective Thinking

Blooms: Understand

Learning Objective: 07-02

7-30 The following linear demand specification is estimated for Conlan Enterprises, a price-setting firm:

where Q is the quantity demanded of the product Conlan Enterprises sells, P is the price of that product, M is income, and is the price of a related product. The results of the estimation are presented below:

Assume that the income is $10,000, the price of the related good is $40, and Conlan chooses to set the price of this product at $30. At the prices and income given above, what is the price elasticity of demand?

a. −0.43

b. −0.86

c. −1.00

d. −1.43

e. −2.40

Difficulty: 02 Medium

Topic: Specification of the Empirical Demand Function

AACSB: Analytical Thinking

Blooms: Apply

Learning Objective: 07-02

7-31 The following linear demand specification is estimated for Conlan Enterprises, a price-setting firm:

where Q is the quantity demanded of the product Conlan Enterprises sells, P is the price of that product, M is income, and is the price of a related product. The results of the estimation are presented below:

Assume that the income is $10,000, the price of the related good is $40, and Conlan chooses to set the price of this product at $30. At the prices and income given above, what is the income elasticity?

a. −1.62

b. −0.87

c. 0.21

d. 0.31

e. 1.50

Difficulty: 02 Medium

Topic: Specification of the Empirical Demand Function

AACSB: Analytical Thinking

Blooms: Apply

Learning Objective: 07-02

7-32 The following linear demand specification is estimated for Conlan Enterprises, a price-setting firm:

where Q is the quantity demanded of the product Conlan Enterprises sells, P is the price of that product, M is income, and is the price of a related product. The results of the estimation are presented below:

For the next 2 questions suppose income remains at $10,000 but the price of the related good increases to $60 and Conlan decides to raise the price of its product to $50. At the prices and income given above, Conlan can expect to sell _________units.

a. 342

b. 600

c. 724

d. 864

e. 872

Difficulty: 02 Medium

Topic: Specification of the Empirical Demand Function

AACSB: Analytical Thinking

Blooms: Apply

Learning Objective: 07-02

7-33 The following linear demand specification is estimated for Conlan Enterprises, a price-setting firm:

where Q is the quantity demanded of the product Conlan Enterprises sells, P is the price of that product, M is income, and is the price of a related product. The results of the estimation are presented below:

For the next 2 questions suppose income remains at $10,000 but the price of the related good increases to $60 and Conlan decides to raise the price of its product to $50.What is the new own price elasticity of demand?

a. −0.24

b. −0.43

c. −0.87

d. −1.00

e. −1.26

Difficulty: 03 Hard

Topic: Specification of the Empirical Demand Function

AACSB: Analytical Thinking

Blooms: Apply

Learning Objective: 07-02

7-34 A market-determined price

a. is determined by the manager of a firm.

b. is determined by the intersection of demand and supply curves.

c. is an endogenous variable

d. both a and b

e. both b and c

Difficulty: 01 Easy

Topic: Estimating Demand for a Price-Setting Firm

AACSB: Reflective Thinking

Blooms: Understand

Learning Objective: 07-03

7-35 Manager-determined prices are

a. not determined by the forces of demand and supply.

b. exogenous variables in a demand equation.

c. associated with price-taking firms.

d. both a and b

e. both b and c

Difficulty: 01 Easy

Topic: Estimating Demand for a Price-Setting Firm

AACSB: Reflective Thinking

Blooms: Understand

Learning Objective: 07-03

7-36 Qualitative forecasting methods

1. use higher quality data than statistical methods.
2. are often the result of expert opinion.
3. cannot be replicated by another researcher.
4. both b and c
5. all of the above

Difficulty: 01 Easy

Topic: Direct Methods of Demand Estimation

AACSB: Reflective Thinking

Blooms: Remember

Learning Objective: 07-01

7-37 Time-series models

1. cannot be replicated by another researcher.
2. use dummy variables to control for cyclical variation.
3. use dummy variables to control for time trend.
4. both a and b
5. both b and c

Difficulty: 01 Easy

Topic: Seasonal (or Cyclical) Variation

AACSB: Reflective Thinking

Blooms: Remember

Learning Objective: 07-05

7-38 Time-series data

a. show the behavior of a particular variable over time.

b. may exhibit trend or cyclical variation, but not both at the same time.

c. may exhibit trend and cyclical variation at the same time.

d. both a and b

e. both a and c

Difficulty: 01 Easy

Topic: Time-Series Forecasts of Sales and Price

AACSB: Reflective Thinking

Blooms: Understand

Learning Objective: 07-04

7-39 Seasonal or cyclical variation in a time series model

1. is regular in nature and can be accounted for by dummy variables.
2. can decrease the accuracy of a forecast if not accounted for by dummy variables.
3. exhibits irregular variation that can be accounted for by dummy variables.
4. both a and b
5. both b and c

Difficulty: 02 Medium

Topic: Seasonal (or Cyclical) Variation

AACSB: Reflective Thinking

Blooms: Understand

Learning Objective: 07-05

7-40 Dummy variables are used in time-series forecasting models

a. to change the intercept of a regression in selected periods.

b. to account for random variation in the data.

c. to account for seasonal variation in the data.

d. both a and b

e. both a and c

Difficulty: 01 Easy

Topic: Seasonal (or Cyclical) Variation

AACSB: Reflective Thinking

Blooms: Understand

Learning Objective: 07-05

7-41 A consulting firm estimates the following quarterly sales forecasting model:

The equation is estimated using quarterly data from 20010I–2020III (t = 1,..., 43). The variable D is a dummy variable for the second quarter where:

D = 1 in the second quarter, and 0 otherwise.

The results of the estimation are:

Give the above, at the 1 percent level of significance, is there a statistically significant trend in sales?

a. No, since 1.86 < 2.704

b. No, since 0.55 < 1.86

c. No, since 1.02 < 2.704

d. Yes, since 1.86 > 0.55

e. Yes, since 3.38 > 2.704

Difficulty: 02 Medium

Topic: Seasonal (or Cyclical) Variation

AACSB: Reflective Thinking

Blooms: Understand

Learning Objective: 07-05

7-42 A consulting firm estimates the following quarterly sales forecasting model:

The equation is estimated using quarterly data from 20010I–2020III (t = 1,..., 43). The variable D is a dummy variable for the second quarter where:

D = 1 in the second quarter, and 0 otherwise.

The results of the estimation are:

Given the above, at the 1 percent level of significance, is there a statistically significant trend in sales?

a. Yes, because 0.0016 < 0.01.

b. No, because 0.0016 < 0.01.

c. Yes, because 0.55 > 0.01.

1. Yes, because 1.86 > 0.01.
2. both c and d

Difficulty: 02 Medium

Topic: Seasonal (or Cyclical) Variation

AACSB: Reflective Thinking

Blooms: Understand

Learning Objective: 07-05

7-43 A consulting firm estimates the following quarterly sales forecasting model:

The equation is estimated using quarterly data from 20010I–2020III (t = 1,..., 43). The variable D is a dummy variable for the second quarter where:

D = 1 in the second quarter, and 0 otherwise.

The results of the estimation are:

Given the above, these estimates indicate that the second quarter change in sales is

a. 22.5 units higher in the second quarter than in the other three quarters.

b. 1.86 units higher in the second quarter than in the other three quarters.

c. 2.00 units higher in the second quarter than in the other three quarters.

d. 24.5 units higher in the second quarter than in the other three quarters.

Difficulty: 01 Easy

Topic: Seasonal (or Cyclical) Variation

AACSB: Reflective Thinking

Blooms: Understand

Learning Objective: 07-05

7-44 A consulting firm estimates the following quarterly sales forecasting model:

The equation is estimated using quarterly data from 20010I–2020III (t = 1,..., 43). The variable D is a dummy variable for the second quarter where:

D = 1 in the second quarter, and 0 otherwise.

The results of the estimation are:

Given the above, what is the estimated intercept of the trend line in the second quarter?

a. 22.50

b. 24.50

c. 24.36

d. 2.00

e. none of the above

Difficulty: 01 Easy

Topic: Seasonal (or Cyclical) Variation

AACSB: Reflective Thinking

Blooms: Understand

Learning Objective: 07-05

7-45 A consulting firm estimates the following quarterly sales forecasting model:

The equation is estimated using quarterly data from 20010I–2020III (t = 1,..., 43). The variable D is a dummy variable for the second quarter where:

D = 1 in the second quarter, and 0 otherwise.

The results of the estimation are:

Given the above, what is the estimated intercept of the trend line in the third quarter?

a. 22.50

b. 24.50

c. 24.36

d. 2.00

e. none of the above

Difficulty: 01 Easy

Topic: Seasonal (or Cyclical) Variation

AACSB: Reflective Thinking

Blooms: Understand

Learning Objective: 07-05

7-46 A consulting firm estimates the following quarterly sales forecasting model:

The equation is estimated using quarterly data from 20010I–2020III (t = 1,..., 43). The variable D is a dummy variable for the second quarter where:

D = 1 in the second quarter, and 0 otherwise.

The results of the estimation are:

Using the estimated trend line above, what is the predicted level of sales in 2020IV ?

a. 110.06

b. 106.20

c. 104.34

d. 102.2

e. none of the above

Difficulty: 02 Medium

Topic: Seasonal (or Cyclical) Variation

AACSB: Reflective Thinking

Blooms: Understand

Learning Objective: 07-05

7-47 A consulting firm estimates the following quarterly sales forecasting model:

The equation is estimated using quarterly data from 20010I–2020III (t = 1,..., 43). The variable D is a dummy variable for the second quarter where:

D = 1 in the second quarter, and 0 otherwise.

The results of the estimation are:

Using the estimated trend line above, what is the predicted level of sales in 2021I ?

a. 110.06

b. 106.20

c. 104.34

d. 102.2

e. none of the above

Difficulty: 02 Medium

Topic: Seasonal (or Cyclical) Variation

AACSB: Reflective Thinking

Blooms: Understand

Learning Objective: 07-05

7-48 Problems in forecasting include:

a. estimates becoming more reliable the further you forecast into the future

b. specification error

c. cyclical variation

d. both b and c

e. all of the above

Difficulty: 02 Medium

Topic: Some Final Warnings

AACSB: Reflective Thinking

Blooms: Understand

Learning Objective: 07-06

7-49 A forecaster used the regression equation

and quarterly sales data for 2004I–2021IV (t = 1, ..., 64) for an appliance manufacturer to obtain the results shown below. Q is quarterly sales, and and are dummy variables for quarters I, II, and III.

At the 5 percent level of significance, is there a statistically significant trend in sales?

a. No, because 1.5 < 2.66.

b. No, because 1.5 < 2.00.

c. No, because 2.14 < 2.66.

d. Yes, because 2.14 > 2.00.

e. none of the above

Difficulty: 02 Medium

Topic: Seasonal (or Cyclical) Variation

AACSB: Reflective Thinking

Blooms: Understand

Learning Objective: 07-05

7-50 A forecaster used the regression equation

and quarterly sales data for 2004I–2021IV (t = 1, ..., 64) for an appliance manufacturer to obtain the results shown below. Q is quarterly sales, and and are dummy variables for quarters I, II, and III.

At the 5 percent level of significance, is there a statistically significant trend in sales?

a. Yes, because 0.0362 < 0.05.

b. No, because 0.0362 > 0.01.

c. Yes, because 0.700 > 0.05.

d. Yes, because 2.14 >0.05.

e. both c and d

Difficulty: 02 Medium

Topic: Seasonal (or Cyclical) Variation

AACSB: Reflective Thinking

Blooms: Understand

Learning Objective: 07-05

7-51 A forecaster used the regression equation

and quarterly sales data for 2004I–2021IV (t = 1, ..., 64) for an appliance manufacturer to obtain the results shown below. Q is quarterly sales, and and are dummy variables for quarters I, II, and III.

The estimated QUARTERLY increase in sales is ______ units, and the estimated ANNUAL increase in sales is ______ units.

a. 1.5; 6

b. 1.4; 4

c. 30; 4

d. 1.5; 40

e. none of the above

Difficulty: 02 Medium

Topic: Seasonal (or Cyclical) Variation

AACSB: Analytical Thinking

Blooms: Apply

Learning Objective: 07-05

7-52 A forecaster used the regression equation

and quarterly sales data for 2004I–2021IV (t = 1, ..., 64) for an appliance manufacturer to obtain the results shown below. Q is quarterly sales, and and are dummy variables for quarters I, II, and III.

What is the estimated intercept of the trend line in the second quarter?

a. 25

b. 26.6

c. 55

d. 65

1. none of the above

Difficulty: 02 Medium

Topic: Seasonal (or Cyclical) Variation

AACSB: Analytical Thinking

Blooms: Apply

Learning Objective: 07-05

7-53 A forecaster used the regression equation

and quarterly sales data for 2004I–2021IV (t = 1, ..., 64) for an appliance manufacturer to obtain the results shown below. Q is quarterly sales, and and are dummy variables for quarters I, II, and III.

What is the estimated intercept of the trend line in the fourth quarter?

a. 0

b. 40

c. 55

d. 70

e. none of the above

Difficulty: 02 Medium

Topic: Seasonal (or Cyclical) Variation

AACSB: Analytical Thinking

Blooms: Apply

Learning Objective: 07-05

7-54 A forecaster used the regression equation

and quarterly sales data for 2004I–2021IV (t = 1, ..., 64) for an appliance manufacturer to obtain the results shown below. Q is quarterly sales, and and are dummy variables for quarters I, II, and III.

Using a 5 percent significance level, these estimation results indicate that sales in

a. the first quarter are greater than sales in any other quarter.

b. the second quarter are greater than sales in any other quarter.

c. the third quarter are greater than sales in any other quarter.

d. the fourth quarter are greater than sales in any other quarter.

Difficulty: 01 Easy

Topic: Seasonal (or Cyclical) Variation

AACSB: Reflective Thinking

Blooms: Understand

Learning Objective: 07-05

7-55 A forecaster used the regression equation

and quarterly sales data for 2004I–2021IV (t = 1, ..., 64) for an appliance manufacturer to obtain the results shown below. Q is quarterly sales, and and are dummy variables for quarters I, II, and III.

In any given year, quarterly sales tend to vary as follows:

a. Q_I > Q_II > Q_III > Q_IV

b. Q_I > Q_II > Q_IV > Q_III

c. Q_II > Q_III > Q_IV > Q_I

d. Q_III > Q_II > Q_I > Q_IV

e. Q_III > Q_IV > Q_II > Q_I

Difficulty: 02 Medium

Topic: Seasonal (or Cyclical) Variation

AACSB: Reflective Thinking

Blooms: Understand

Learning Objective: 07-05

7-56 A forecaster used the regression equation

and quarterly sales data for 2004I–2021IV (t = 1, ..., 64) for an appliance manufacturer to obtain the results shown below. Q is quarterly sales, and and are dummy variables for quarters I, II, and III.

Using the estimation results given above, the predicted level of sales in 2022I is _______ units.

a. 137.5

b. 139

c. 133.5

d. 132

e. none of the above

Difficulty: 02 Medium

Topic: Seasonal (or Cyclical) Variation

AACSB: Analytical Thinking

Blooms: Apply

Learning Objective: 07-05

7-57 A forecaster used the regression equation

and quarterly sales data for 2004I–2021IV (t = 1, ..., 64) for an appliance manufacturer to obtain the results shown below. Q is quarterly sales, and and are dummy variables for quarters I, II, and III.

Using the estimation results given above, the predicted level of sales in 2022II is _______ units.

a. 127.5

b. 137.5

c. 154

d. 155.5

e. none of the above

Difficulty: 02 Medium

Topic: Seasonal (or Cyclical) Variation

AACSB: Reflective Thinking

Blooms: Understand

Learning Objective: 07-05

7-58 A forecaster used the regression equation

and quarterly sales data for 2004I–2021IV (t = 1, ..., 64) for an appliance manufacturer to obtain the results shown below. Q is quarterly sales, and and are dummy variables for quarters I, II, and III.

Using the estimation results given above, the predicted level of sales in 2022III is _______ units.

a. 141.5

b. 156

c. 172

d. 173.5

e. none of the above

Difficulty: 02 Medium

Topic: Seasonal (or Cyclical) Variation

AACSB: Analytical Thinking

Blooms: Apply

Learning Objective: 07-05

7-59 A forecaster used the regression equation

and quarterly sales data for 2004I–2021IV (t = 1, ..., 64) for an appliance manufacturer to obtain the results shown below. Q is quarterly sales, and and are dummy variables for quarters I, II, and III.

Using the estimation results given above, the predicted level of sales in 2022IV is _______ units.

a. 125

b. 127.50

c. 132

d. 133.5

e. none of the above

Difficulty: 02 Medium

Topic: Seasonal (or Cyclical) Variation

AACSB: Analytical Thinking

Blooms: Apply

Learning Objective: 07-05

7-60 The manufacturer of Beanie Baby dolls used quarterly price data for 2012I - 2020IV (t = 1, ..., 36) and the regression equation

to forecast doll prices in the year 2021. is the quarterly price of dolls, and and are dummy variables for quarters I, II, and III, respectively.

At the 2 percent level of statistical significance, is there a statistically significant trend in the price of dolls?

a. Yes, because 0.0022 < 0.02.

b. No, because 0.0022 > 0.02.

c. Yes, because 0.800 > 0.02.

d. Yes, because 0.240 > 0.02.

e. Yes, because 3.33 > 0.02.

Difficulty: 02 Medium

Topic: Time-Series Forecasts of Sales and Price

AACSB: Analytical Thinking

Blooms: Apply

Learning Objective: 07-04

7-61 The manufacturer of Beanie Baby dolls used quarterly price data for 2012I - 2020IV (t = 1, ..., 36) and the regression equation

to forecast doll prices in the year 2021. is the quarterly price of dolls, and and are dummy variables for quarters I, II, and III, respectively.

The estimated QUARTERLY increase in price is ______, and the estimated ANNUAL increase in price is ______ .

a. $1.50; $6.00

b. $1.40; $4.00

c. $0.60; $2.40

d. $0.80; $3.20

e. none of the above

Difficulty: 02 Medium

Topic: Seasonal (or Cyclical) Variation

AACSB: Reflective Thinking

Blooms: Understand

Learning Objective: 07-05

7-62 The manufacturer of Beanie Baby dolls used quarterly price data for 2012I - 2020IV (t = 1, ..., 36) and the regression equation

to forecast doll prices in the year 2021. is the quarterly price of dolls, and and are dummy variables for quarters I, II, and III, respectively.

What is the estimated intercept of the trend line in the 1st quarter?

a. 24

b. −8

c. 32

d. 16

e. none of the above

Difficulty: 02 Medium

Topic: Seasonal (or Cyclical) Variation

AACSB: Analytical Thinking

Blooms: Apply

Learning Objective: 07-05

7-63 The manufacturer of Beanie Baby dolls used quarterly price data for 2012I - 2020IV (t = 1, ..., 36) and the regression equation

to forecast doll prices in the year 2021. is the quarterly price of dolls, and and are dummy variables for quarters I, II, and III, respectively.

What is the estimated intercept of the trend line in the 4th quarter?

a. 22.8

b. 16

c. 18

d. 20

1. none of the above

Difficulty: 02 Medium

Topic: Seasonal (or Cyclical) Variation

AACSB: Analytical Thinking

Blooms: Apply

Learning Objective: 07-05

7-64 The manufacturer of Beanie Baby dolls used quarterly price data for 2012I - 2020IV (t = 1, ..., 36) and the regression equation

to forecast doll prices in the year 2021. is the quarterly price of dolls, and and are dummy variables for quarters I, II, and III, respectively.

At the 2 percent level of statistical significance, the estimation results indicate that price in the ________ quarter is significantly higher than in any other quarter.

a. 1st

b. 2nd

c. 3rd

d. 4th

Difficulty: 02 Medium

Topic: Seasonal (or Cyclical) Variation

AACSB: Analytical Thinking

Blooms: Apply

Learning Objective: 07-05

7-65 The manufacturer of Beanie Baby dolls used quarterly price data for 2012I - 2020IV (t = 1, ..., 36) and the regression equation

to forecast doll prices in the year 2021. is the quarterly price of dolls, and and are dummy variables for quarters I, II, and III, respectively.

At the 2 percent level of statistical significance, the results indicate that price in the ________ quarter is significantly lower than in any other quarter.

a. 1st

b. 2nd

c. 3rd

d. 4th

Difficulty: 02 Medium

Topic: Seasonal (or Cyclical) Variation

AACSB: Analytical Thinking

Blooms: Apply

Learning Objective: 07-05

7-66 The manufacturer of Beanie Baby dolls used quarterly price data for 2012I - 2020IV (t = 1, ..., 36) and the regression equation

to forecast doll prices in the year 2021. is the quarterly price of dolls, and and are dummy variables for quarters I, II, and III, respectively.

In any given year price tends to vary from quarter to quarter as follows:

a. P_I > P_II > P_III > P_IV

b. P_I > P_IV > P_III > P_II

c. P_II > P_III > P_IV > P_I

d. P_III > P_I > P_II > P_IV

e. P_IV > P_III > P_II > P_I

Difficulty: 02 Medium

Topic: Seasonal (or Cyclical) Variation

AACSB: Analytical Thinking

Blooms: Apply

Learning Objective: 07-05

7-67 The manufacturer of Beanie Baby dolls used quarterly price data for 2012I - 2020IV (t = 1, ..., 36) and the regression equation

to forecast doll prices in the year 2021. is the quarterly price of dolls, and and are dummy variables for quarters I, II, and III, respectively.

Using the estimated time-series regression, predicted price in the 1st quarter of 2014 is

a. $53.60.

b. $45.60.

c. $56.00.

d. $37.60.

e. none of the above

Difficulty: 02 Medium

Topic: Seasonal (or Cyclical) Variation

AACSB: Reflective Thinking

Blooms: Understand

Learning Objective: 07-05

7-68 The manufacturer of Beanie Baby dolls used quarterly price data for 2012I - 2020IV (t = 1, ..., 36) and the regression equation

to forecast doll prices in the year 2021. is the quarterly price of dolls, and and are dummy variables for quarters I, II, and III, respectively.

Using the estimated time-series regression, predicted price in the 2nd quarter of 2021 is

a. $48.40

b. $54.40

c. $40.40

d. $51.40

e. none of the above

Difficulty: 02 Medium

Topic: Seasonal (or Cyclical) Variation

AACSB: Reflective Thinking

Blooms: Understand

Learning Objective: 07-05