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1、Managerial Economics 7e (Keat)Chapter 5 Demand Estimation and Forecasting (Appendices 5A and 5B)Multiple-Choice Questions1) Regression analysis can best be described asA) a statistical technique for estimating the best relationship between one variable and a set of other selected variables.B) a stat
2、istical technique for determining the true values of variables.C) a statistical technique for creating functional relationships among variables.D) None of the aboveAnswer: ADiff: 22) If a regression coefficient passes the t-test, it means thatA) the regression equation is valid.B) the regression coe
3、fficient is significantly different from zero.C) the regression coefficient can be used for forecasting.D) the regression coefficient should be included in the regression equation.Answer: BDiff: 23) The coefficient of a linear regression equation indicatesA) the change in the dependent variable rela
4、tive to a unit change in the independent variable.B) the change in the independent variable relative to a unit change in the dependent variable.C) the percentage change in the dependent variable relative to a unit change in the independent variable.D) the percentage change in the independent variabl
5、e relative to a unit change in the dependent variable.Answer: ADiff: 24) Which of the following is a test of the statistical significance of the entire regression equation?A) t-testB) R2C) F-testD) Durbin-Watson testAnswer: CDiff: 143) Quantitative forecasting that projects past data without explain
6、ing the reasons for future trends is calledA) scientific forecasting.B) dumb forecasting.C) empirical forecasting.D) naive forecasting.Answer: DDiff: 144) Which of the following is not a drawback of forecasting using the compound growth rate method?A) only considers first and last observationsB) con
7、siders only equal absolute changesC) disregards fluctuations between the original and terminal observationsD) does not consider any trends in the dataAnswer: BDiff: 245) Charting observations on a semi-logarithmic graph will help the analyst to ascertain whether A) absolute changes from period to pe
8、riod are constant.B) whether percentage changes from period to period are constant.C) whether percentage changes from period to period are declining.D) Both B and CAnswer: DDiff: 346) A major problem in projecting with a trend line is thatA) only straight-line projections can be accommodated.B) it i
9、s valid only if the trend is upward.C) it will not forecast turning points in activity.D) it is a very complex method of forecasting.Answer: CDiff: 347) Which of the following is the exponential trend equation to forecast sales (S)?A) S = a + b(t)B) S = a + 枚C) S = a + b(t) + c(t)2D) None of the abo
10、veAnswer: BDiff: 348) Among the advantages of the technique of forecasting are ease of calculation,relatively little requirement for analytical skills, and the ability to provide the analyst with information regarding the statistical significance of results and the size of statistical errors. A) lea
11、st-squares trend analysisB) compound growth rateC) visual trend-fittingD) expert opinionAnswer: ADiff: 349) Among the advantages of the least-squares trend analysis techniques isA) the ease of calculation.B) relatively little analytical skill required.C) its ability to provide information regarding
12、the statistical significance of the results.D) All of the aboveAnswer: DDiff: 250) The forecasting method that involves using an average of past observations to predict the future (if the forecaster feels that the future is a reflection of some average of past results) is the A) moving average metho
13、d.B) econometric forecasting method.C) exponential smoothing method.D) Both A and BE) Both A and CAnswer: EDiff: 251) An explanatory forecasting technique in which the analyst must select independent variables that help determine the dependent variable is calledA) exponential smoothing.B) regression
14、 analysis.C) trend analysis.D) moving average method.Answer: BDiff: 152) When the more recent observations are more relevant to the estimate of the next period than previous observations, the naive forecasting method to employ isA) exponential smoothing.B) compound growth rate.C) trend analysis.D) m
15、oving averages.Answer: ADiff: 353) Which of the following is a Leading Economic Indicator?A) commercial and industrial loans outstandingB) industrial productionC) average weekly duration of unemploymentD) None of the aboveAnswer: DDiff: 154) Which of the following is a Lagging Economic Indicator?A)
16、change in average labor costs in manufacturingB) M2 measure of the money supplyC) industrial productionD) None of the aboveAnswer: ADiff: 155) The Delphi method is aA) smoothing technique in forecasting.B) consensual forecast based on expert opinions.C) compound growth approach to forecasting.D) nai
17、ve forecasting approach.Answer: BDiff: 156) The Trend Projection approach to forecasting is represented byA) time-series regressions.B) exponential smoothing.C) opinion polls.D) All of the aboveAnswer: DDiff: 2Analytical QuestionsThe following questions refer to this regression equation, (standard e
18、rrors in parentheses.)Q = 8,400 -10P + 5A + 4Px + 0.05 1,(1,732) (2.29)(1.36)(1.75) 0.15)R2 = 0.65N= 120F = 35.25Standard error of estimate = 34.3 Q = Quantity demanded P = Price = 1,000A = Advertising expenditures, in thousands = 40 PX = price of competitors good = 800I = average monthly income = 4
19、,0001) Calculate the elasticity for each variable and briefly comment on what information this gives you in each case.Answer: Based on the above figures, Q = 2,000(Own) Price elasticity =-10(1,000/2,000) = -5. Demand is elastic at this price.Advertising elasticity = 5(40/2,000) = 0.1. A 1% increase
20、in advertising expenditure will lead to a 0.1% increase in sales.Cross-price elasticity = 4(800/2,000)= 1.6. Because the cross-price elasticity is positive, the goods are considered substitutes. A 1% increase in the competitors price is expected to produce a 1.6% increase in the firms sales.Income e
21、lasticity = 0.05(4,000/2,000) = 0.1. The good is most likely a normal good because the income elasticity is greater than zero and also a necessity because the income elasticity is less than one. This good is not likely to be particularly responsive to income changes.2) Calculate t-statistics for eac
22、h variable and explain what this tells you. Answer: Price: -10/2.29 =-4.37Advertising: 5/1.36 = 3.86Competitors price: 4/1.75 = 2.29 Income: 0.05/1.5 = 0.33All variables are statistically significant with the exception of income. Thus we can conclude that the other variables do have an impact on the
23、 quantity demanded of this good.3) How is the R2 value calculated, and what information does this give you?Answer: R2 = RSS/TSS = 1 - (ESS/TSS), where TSS = sum of squared deviations of the sample values of Y from their mean, RSS = sum of squared deviations of the estimated values from their mean, a
24、nd ESS 二 sum of the squared deviations of the sample values from their estimated values. The R2 value tells you what percentage of the variation in the dependent variable is explained by variation in the independent variables, or the ngoodness of fitn of the equation. In this case, 65% of the variat
25、ion in quantity demanded is explained by variation in the independent variables.4) How would you evaluate the quality of this equation overall? Do you have any concerns? Explain.Answer: The overall equation is significant, as shown by the F-test. The R2 value is reasonably high. One variable is not
26、significant (might be desirable to re-estimate the equation without it, although the inclusion of irrelevant variables does not affect the properties of the OLS model). The sample size is sufficiently large. There are no significant concerns. Other answers are possible.5) When would you use a one-ta
27、iled rather than a two-tailed t-test when checking significance levels?Answer: You would use a one-tailed test when the sign of the variable is important. That is, if you only want to know if the independent variable has a statistically significant effect on the dependent variable, a two-tailed test
28、 should be used. If direction of effect is important, then a one-tailed test should be used.6) Should this firm be concerned if macroeconomic forecasters predict a recession? Explain. Answer: Based on income elasticity from this equation (0.1), no. The good is income inelastic, so a recession should
29、 not cause a significant decrease in sales. Note also that income is not statistically significant in this equation, making it even less of a concern.7) The firm is considering changing its price to $900. Predict the quantity demanded at that price, all other things equal and provide a 95% confidenc
30、e interval on your estimate. (In doing this, explain the value of t-critical you will use in developing your 95% confidence interval.) Answer: At a price of $900, the point estimate of quantity demanded is 3,000. With a sample size of 120, the degree of freedom is 115. Critical t values for 100 and
31、125 are 1.984 and 1.979 respectively, therefore a best guess of t-critical for this model is tCritical - 1.981. Given this, the 95% CI is given by BG tcritical x SEE or 2,932 to 3,068.8) What is multicollinearity? In general, how would you know if you had a problem with multicollinearity, and how co
32、uld you correct it?Answer: Multicollinearity occurs when the independent variables are correlated. One indication of multicollinearity is that the equation will pass the F-test, but individual variables will not have significant t values. Multicollinearity can sometimes be corrected by omitting some
33、 of the correlated variables or by choosing proxy variable.9) How could a manager use the information contained in this regression equation? Answer: Many answers are possible. A manager might note that demand is elastic, and thus that sales might respond to a price decrease. Likewise, sales should r
34、espond to increases in advertising. Sales are less likely to be impacted by income changes. The equation could be used to forecast expected sales based on changes in one or more of the variables. The equation could be used to help in coordinating production plans or with other parts of the firm.10)
35、Why is the identification problem more likely with time-series estimates of demand? Answer: Identification problems occur when it is possible that both demand and supply are shifting. Thus a series of observations is not identifying points along a single demand curve; it is identifying a series of e
36、quilibrium points that may or may not be along a single curve. This is most likely to be a problem in time series estimation of demand curves, simply because over any reasonably long time period it is quite likely that both supply and demand will change somewhat.11) Use the equationQd = 5,000 - 15P
37、+ 50A + 3Px - 41, (2,117) (2.7) (15) (2) (3)where Qd = Quantity Demanded, P = Good Price, A = Advertising Expenditures, Px = Price of a Competitive Good, A = Advertising Expenditures, I = Average Monthly Income, and the Standard Errors of the Regression Coefficients are shown in Parentheses.Calculat
38、e the t-statistics for each variable and explain what inferences can be drawn from them. If R2 of this equation is 0.25, what inference can be drawn from it?Answer:P = 15/2.7 = 5.55, and Good Price is a very significant determinant of demand for the good.A 二 50/15 = 3.33, and Advertising Expenditure
39、s also are a significant determinant of demand. Px = 3/2 = 1.50, and Price of a Competitive Good is not a significant determinant of demand.1 = 4/3= 1.33, and Average Monthly Income also is not a significant determinant of demand. R2 = 0.25 collectively explain one quarter of the variation in quanti
40、ty demanded.12) What are the key steps for analyzing Demand functions based on Regression results? Answer: Check signs and magnitudes; compute elasticity coefficients; determine statistical significance.13) Explain the difference between Cross-Section and Time-Series Regression Analysis. Answer: Cro
41、ss-section analysis examines the relationships between given values of a dependent variable and one or more independent variables at one moment in time (for one time period only).14) The demand equation for the Widget Company has been estimated to be:Q = 20,000 + 10I-50P + 20 Pcwhere Q = monthly num
42、ber of widgets sold, I = average monthly income, P 二 price of widgets, and Pc = average price of competing goods.a. If next months income is forecast to be 2,000, the price of competing goods is forecast to be $20, and the price of widgets will be set at $30, forecast sales.b. What will sales be if
43、the price is dropped to $20?Answer:c. The forecast for sales is 38,900.d. The forecast for sales will be 39,400.15) Based on annual data from 2000-2010, the Gadget Company estimates that sales are growing according to a linear trend:Q = 50,000 + 200/where t is time and ? = 0 in 2000.a. Forecast sale
44、s for 2013.b. Do you see any problems with this forecasting method?Answer:c. 52,600d. The equation is based on data from 2000-2010. The further away from the final year, the less likely the equation is to be correct, as more factors may alter the trend seen in the data. A further issue is that the m
45、odel is based on only 11 observed values.16) If $ 1,000 is placed in an account earning 8% annually on January 1, 1999, how much would be in this account on January 1, 2013?Answer: $2,93717) You are given the following straight-line trend equation: Sales = 1,275 + 89.3t, where 1990 represents t = 1.
46、 Project sales for 2000.Answer: 2,257.318) The following are the sales achieved by Jensen Fabrics during the last 7 years:2007200820092010201120122013$116,000124,000127,000146,000155,000154,000162,000Using the compound growth rate calculation, what would be your estimate for sales in 2014? Answer: $
47、171,200 (growth rate is 5.7%)19) The following are the actual sales for the last six periods:PeriodSales175028203600485059006700Using a 3-month moving average, what would be your prediction for period 7?Answer: 81720) The following are the actual sales for the last six periods:Period123456Sales 750
48、820 600 850 900 700If the exponential smoothing forecasting method is used, and the smoothing factor is .6, what will be the forecast for period 7?Answer: 76121) What are the prerequisites of a good forecast?Answer: A forecast must be consistent with all aspects (parts) of a business. A forecast should be based on knowledge of the relevant past, unless underlying conditions change or there is no past to consider. A