Suppose That Simple Exponential Smoothing with Is Used to Forecast

question 55

Essay

Suppose that simple exponential smoothing with is used to forecast monthly wine sales at a liquor store. After April's demand is observed, the forecasted demand for May is 4500 bottles of wine.
-(A) At the beginning of May, what is the forecast of July's wine sales?
(B) Suppose that actual demands during May and June are as follows: May, 5000 bottle of wine; June 4000 bottle of wine. After observing June's demand, what is the forecast for July's demand?
(C) Based on the data from (B), the demands during May and June average (5000+4000)/2 = 4500 bottle per month. This is the same as the forecast for monthly sales before we observed the May and June data. Yet after we observe the May and June demands for wine, our forecast for July demand has decreased from what it was at the end of April. Why?

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Definitions:

Profit-Maximizing Level

The point of operation where a firm achieves its highest profit, determined by the intersection of marginal cost and marginal revenue.

Marginal Cost

The cost escalation associated with the production of one more unit of a product or service.

Economic Loss

Occurs when total cost exceeds total revenue, not covering all explicit and implicit costs.

Economic Profit

The separation between whole income and all charges, factoring in both straightforward and subtle costs.