The Following Table Shows the Annual Revenues (In Millions of Dollars)

question 39

Essay

The following table shows the annual revenues (in millions of dollars) of a pharmaceutical company over the period 1990-2011. The autoregressive models of order 1 and 2, y_t = β₀ + β₁y_{t - 1} + ε_t, and y_t = β₀ + β₁y_{t - 1} + β₂y_{t - 2} + ε_t, were applied on the time series to make revenue forecasts. The relevant parts of Excel regression outputs are given below.
Model AR(1): Model AR(2): Using the AR(2) model, find the company revenue forecast for 2012.

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Definitions:

Upward-Sloping Demand

A representation typically contrary to the law of demand, suggesting that as prices increase, the quantity demanded also increases. Generally, this is indicative of Giffen or Veblen goods.

Equilibrium Price

The price at which the quantity of a good or service demanded by consumers is equal to the quantity supplied by producers, leading to market balance.

Velcro

A fastening device consisting of two strips of fabric, one covered with tiny hooks and the other with a dense pile, which adhere when pressed together.

Upward-Sloping Supply

A graphical representation indicating that as the price of a good increases, the quantity supplied also increases, assuming other factors remain constant.