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

question 80

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(1)model,find the company revenue forecast for 2012.

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Definitions:

Variable Expenses

Costs that change in proportion to the level of production or sales activities of a business.

Fixed Expenses

Costs that do not change with the level of production or sales over a short period, such as rent, salaries, and insurance.

Net Operating Income

Income before interest and income taxes have been deducted.

Drop Product

A strategy or decision by a company to discontinue the production, sale, or support of a product line or item.