The forecasting staff for the Prizer Corporation has developed a model to predic

Question

The forecasting staff for the Prizer Corporation has developed a model to predict sales of its air-cushioned-ride snowmobiles. The model specifies that sales S vary jointly with disposable personal income Y and the population between ages 15 and 40, Z, and inversely with the price of the snowmobiles P. Based on past data, the best estimate of this relationship is

S = k*YZ/P

where k has been estimated (with past data) to equal 100.

a. If Y = $1,200 and P = $20,000, what value would you predict for S?

b. What happens if P is reduced to $17,500?

c. How would you go about developing a value for k?

d. What are the potential weaknesses of this model?

Explanation / Answer

a. S = k*YZ/P = 100 * 1200 * 27.5 / 20000=165

b. S= 188.75

c. k = S*P/ YZ

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