TABLE 16-12 A Local Store Developed a Multiplicative Time-Series Model to Forecast

question 95

Multiple Choice

TABLE 16-12
A local store developed a multiplicative time-series model to forecast its revenues in future quarters, using quarterly data on its revenues during the 4-year period from 2005 to 2009. The following is the resulting regression equation:
log₁₀ = 6.102 + 0.012 X - 0.129 Q₁ - 0.054 Q₂ + 0.098 Q₃
where is the estimated number of contracts in a quarter.
X is the coded quarterly value with X = 0 in the first quarter of 2005.
Q₁ is a dummy variable equal to 1 in the first quarter of a year and 0 otherwise.
Q₂ is a dummy variable equal to 1 in the second quarter of a year and 0 otherwise.
Q₃ is a dummy variable equal to 1 in the third quarter of a year and 0 otherwise.
-Referring to Table 16-12, to obtain a forecast for the third quarter of 2010 using the model, which of the following sets of values should be used in the regression equation?

• A) X = 22, Q₁ = 0, Q₂ = 0, Q₃ = 0
• B) X = 22, Q₁ = 0, Q₂ = 0, Q₃ = 1
• C) X = 23, Q₁ = 0, Q₂ = 0, Q₃ = 0
• D) X = 23, Q₁ = 0, Q₂ = 0, Q₃ = 1

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Definitions:

Accounting Profit

The net income of a business as calculated by subtracting total expenses from total revenues, following standard accounting principles.

Marginal Costs

The additional expense incurred from the creation of one extra unit of a product, essential in economic decision-making.

Marginal Cost Curve

A graphical representation showing the cost of producing one more unit of a good.

Economic Profit

The difference between a firm's total revenues and its total costs, including both explicit and implicit costs, representing a profit above the opportunity cost.