A Forecaster Is Assessing Two Different Models for Demand

question 15

Essay

A forecaster is assessing two different models for demand. The output from each model and the actual demand data appear in the table. Use MAD and a tracking signal to compare the two models. Which model does a better job of forecasting?
$$\begin{array} { | c | c | c | } \hline \text { Demand } & \text { Model 1 } & \text { Model 2 } \\\hline 52 & 55.0 & 51.0 \\\hline 52 & 54.7 & 51.9 \\\hline 60 & 54.4 & 52.0 \\\hline 56 & 55.0 & 59.2 \\\hline 58 & 55.1 & 56.3 \\\hline 58 & 55.4 & 57.8 \\\hline 52 & 55.6 & 58.0 \\\hline 57 & 55.3 & 52.6 \\\hline 53 & 55.4 & 56.6 \\\hline 57 & 55.2 & 53.4 \\\hline\end{array}$$

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Definitions:

Investment Return

The gain or loss on an investment over a specified period, expressed as a percentage of the investment's cost.

Interest Rate

The percentage charged by lenders to borrowers for the use of money, typically expressed at an annual rate.

Economic Profit

The difference between total revenues earned by a firm and its total opportunity costs.

Investment Return

The increase or decrease in the value of an investment during a certain period, represented as a percentage of the original investment's price.