Question

Plot the following data and then calculate and plot a three-period moving average. then calculate and plot a five-period moving average. What do you observe in comparing the plots of he three and five period moving averages?

period	1	2	3	4	5	6	7	8	9	10
demand	60	52	55	42	57	33	26	42	35	31

Develop a forecast for period 11 using expontentional smoothing and three values of alpha: .05, .30 and .90 Plot actual data and the expontential averages for the three values of alpha. What do you observe?

Which of the five forecast models would you use?

Answer 1

Answer is in image

i wouuld use 3 month moving average because it gives lowest MSE

Explanation:

MSE= Mean square error = sum of squares of deviation/ no. of months

the formula to be used in Exponential smoothing is

F_t+1= alpha*A_t + (1-alpha) F_t

A_t means Actual demand of t'th month, if you want to find out the Forecast through exponential smoothing= forecast of 3rd month = alpha*actual demand of 2nd month+(1-alpha) *forecast demand of 2nd month

remember forecast of 1st month is actual demand of 1st month

Forecast of a month with three period moving average = (sales of most recent month+ sales of next most recent month+ sales of third recent month)/3