Running head: questions for critical thinking 3 1
Matthew Moore
Liberty University
BUSI 620
Questions for Critical Thinking 3
questions for critical thinking 32
Questions for Critical Thinking 3
Chapter 6
Discussion Question 1
(a)In business, forecasting is looing ahead and planning for the future of the
company. It involves determining how much product to produce, how much to
charge, and how much to spend producing. It also makes plans for the growth
of the company. It is important for businesses and firms to forecast because
this gives the business a game plan. Spending money and producing products
without any organization would cause the business to either over or under
produce. Either way, the company will be out of business in a short time.
Forecasting helps keep businesses and firms from spending too much money
or not producing enough products.
(b)The different types of forecasting are Qualitative forecasts, Time Series
Analysis, Smoothing techniques, Barometric methods, Econometric models,
and Input-Output forecasting.
(c)A firm will use six factors when choosing a forecasting method. These are
“(1) the cost of preparing the forecast and the benefit that results from its use,
(2) the lead time in decision making, (3) the time period of the forecast, (4) the
level of accuracy required, (5) the quality and availability of data, and (6) the
level of complexity of the relationships to be forecast.” (Salvatore, D. 2011,
pg 219).
Problem 7
Appendix Problem 1
Discussion Question 15
questions for critical thinking 3
Discusoin Question 7
The diffusion index for months 2-3 is 100
3
Even though forecasting may miss the mark by a wide margin, it is still considered a
useful tool. Armed with the information that forecasting can give them, managers can make
informed decisions thus saving the firm money and resources.
(a) Exponential smoothing is used more frequently than moving averages.
(b) Determining the best smoothing technique comes down to the quality of information
needed. With moving averages the information is applied generally, where with
exponential smoothing the information is more up to date.
(c) We can forecast the values of a time series that contains a secular trend and seasonal
and random variations by applying the exponential smoothing method.
3- months Moving average
MonthCPIForecast (Ft)At -Ft
Jan-00 167.9 166.9 1.0
Feb-00 169.3 167.4 1.9
(At - Ft)2
1.00
3.48
https://www.coursehero.com/file/11223663/Questions-for-Critical-Thinking-3/
Appendix Question 3
questions for critical thinking 3 4
Mar-00 170.7
Apr-00 170.6
May-00 171.1
Jun-00 171.0
Jul-00 171.7
Aug-00 172.2
Sep-00 173.3
Oct-00 173.8
Nov-00 173.5
Dec-00 173.5
RMSE
6 -
months
Moving
average
Month CPI
Jan-00 167.3
Feb-00 167.7
Mar-00 168.8
Apr-00 170.1
May-00 170.5
Jun-00 170.9
Jul-00 171.0
Aug-00 171.5
Sep-00 172.0
Oct-00 172.9
Nov-00 173.5
Dec-00 173.5
RMSE
168.
2
169.
3
170.
2
170.
8
170.
9
171.
3
171.
6
172.
4
173.
1
173.
5
1.29
Exponential smoothing with alpha = 0.3
MonthCPIForecast (Ft)At -Ft
Jan-00 167.9 167.3 0.6
Feb-00 169.3 167.5 1.8
Mar-00 170.7 168.0 2.7
Apr-00 170.6 168.8 1.8
May-00 171.1 169.4 1.7
2.
5
1.
3
0.
9
0.
2
0.
8
0.
9
1.
7
1.
4
0.
4
0.
0
Forecast
(Ft)At -Ft
166.4 0.9
166.6 1.1
167.3 1.5
168.1 2.0
168.8 1.6
169.5 1.4
170.1 0.9
170.7 0.7
171.2 0.8
171.7 1.3
172.2 1.3
172.6 0.9
1.28
(At - Ft)2
(At - Ft)2
0.36
3.31
7.15
3.14
3.03
6.42
1.69
0.81
0.04
0.64
0.87
2.78
1.96
0.16
0.00
0.90
1.18
2.38
4.15
2.70
2.03
0.76
0.56
0.59
1.58
1.82
0.86
questions for critical thinking 3 5
Chapter 7
According to RMSE, moving average method is better than the exponential smoothing
method because of the low RMSE. The lower the RMSE, the better is the performance and hence
the forecast values.
Jun-00171.0169.91.1 1.25
Jul-00171.7170.21.5 2.20
Aug-00172.2170.71.5 2.37
Sep-00173.3171.12.2 4.74
Oct-00173.8171.82.0 4.09
Nov-00173.5172.41.1 1.25
Dec-00173.5172.70.8 0.61
RMSE 1.67
Exponential smoothing with alpha =
0.7
At
MonthCPIForecast (Ft)-Ft(At - Ft)2
Jan-00167.3166.40.9 0.90
Feb-00167.7166.61.1 1.18
Mar-00168.8167.31.5 2.38
Apr-00170.1168.12.0 4.15
May-00170.5168.81.6 2.70
Jun-00170.9169.51.4 2.03
Jul-00171.0170.10.9 0.76
Aug-00171.5170.70.7 0.56
Sep-00172.0171.20.8 0.59
Oct-00172.9171.71.3 1.58
Nov-00173.5172.21.3 1.82
Dec-00173.5172.60.9 0.86
RMS
E 1.28
Discussion Question 11
Discussion Question 12
questions for critical thinking 3
Discussion Question 3
6
Because there is a margin of labor that an employer can expect form his employees,
raising the minimum wage would decrease the amount of productivity from unskilled laborers
(a) The law of diminishing returns is reflected in the shape of the total product curve in
the declining portion of MPL. (b) “The range from the origin to the point where APL is maximum
is Phase I of production for labor. Stage II of production for labor extends from the point where
the APL is maximum to the point where the MPL is at zero. The range over which the MPL is
negative is stage III of production for labor.” (Salvatore, pg 277)
This statement is false. A more productive worker will be able to learn the skills
necessary for the job. Whereas, a more qualified worker who is not productive will cost the firm
in the long run
Workers
hired
0
1
2
3
Total
Product
0
12
22
30
MP *
0
12
10
8
Marginal
Revenue
Per
Product
(MR)
10
10
10
10
MRP
(MP X
MR)
0
120
100
80
Problems 4, 12, and 13
questions for critical thinking 3 7
4). The number of workers to be hired would be 5
12). The production function exhibits diminishing returns to capital and labor
throughout. For example, holding capital constant at K = 1 and increasing
labor from L = 1 to L = 2 increases Q from 10 to 10 √2 = 14.14.
Therefore, MPL = 4.14. Increasing labor to L = 3 results in Q = 10 3 =
17.32, and MPL = 3.18 (i.e., the MPL declines). Therefore, if we increase L
from 2 to 3 then the production function results in diminishing returns.
13). (a) True. A company should stop
expanding output after reaching diminishing returns due to the fact that the cost for producing
the products remains the same while less is being brought back to the company. (b). False.
Large and small firms should not be limited to the amount of returns they are allowed to have. In
a free market economy, each business should be allowed to make as much money from each
product as the market will allow.
4
5
3
6
4
0
6
4
1
0
1
0
6
0
4
0
Running head: questions for critical thinking 38
References
Salvatore, D. (2011). Managerial economics in a global economy (7th ed.). New York, NY:
Oxford University Press. ISBN: 9780199811786
