Quiz 6: Forecasting

Business

a) The constant growth model with annual compounding can be described as follows: img img …… (1) Where is employment level after time period t, is employment level in the base period and g is the annual growth rate. For the occupation of B.C we have: img Taking logs on both the sides, img Take antilog on both the sides, img Substituting this value in Equation (1) img Hence annually compounded value for the occupation B.C for the year 2018 is 567. Similarly performing the same procedure for other occupations we get the following table for the annually compounded values: img The constant growth model with continuous compounding is based on the following: img …… (2) Where is employment level after time period t, is employment level in the base period and g is the annual growth rate. For the occupation B.C img Take log on both the side, img Substituting in Equation (2) img The continuously compounded value for occupation B.C is 567. Repeating it for other occupations we get the following results: img b) The results from the two different methods i.e. constant growth model with annual compounding and continuous compounding are similar.

Both Microeconomic and Macroeconomic factors play a pivotal role in forecasting for sales and profits in businesses. The Microeconomic factor refers to those factors that are based on partial economic data or derived from interrelationships in the industry. For example, when it results in a downward trend in the demand for the automobiles; when there is a fall in fuel prices it can increases the demand for automobiles a fuel price hike. This hints towards a strong complement good relationship between automobiles and fuel. Generally while forecasting sales and profits a firm must include certain microeconomic factors such as total workforce employed, production volume of its products, advertisement campaigns etc. Hence, Microeconomic factors are which affect the behavioral patterns at an individual, firm or industry level. The Macroeconomic factors are the one is which affect the overall economic activity in the economy and are based on aggregate economic data. Some of the Macroeconomic factors that must be noticed by the firms for constructing their forecasts of sales and profits include inflation levels, unemployment levels, savings and investment levels in the economy along with interest rates at regional, national and international levels.

a) Attendance at the National Park witnesses' seasonal fluctuations over the year as it gradually increases during the spring season, then a boom during the summers and with the inception of autumn the numbers starts declining. Due to these seasonal fluctuations over the year, despite a 42.4 percent average growth in monthly attendance in December is less than what it was in January. b) Here it is worthy to note that Arithmetic Mean gives a distorted view of growth in Park's attendance as an increase in attendance is unlimited but decline cannot be more than 100 percent. Arithmetic mean also faces a major drawback of being affected by extreme observations, just like in this case where the growth in the months of May (269%) and June (186.2%) overpowers the smaller increases and declines in the attendance at the Park when Arithmetic Mean is calculated. However when such a data is collected over the number years rather than during a single year, the data follows a secular trend and in that case Arithmetic Mean gives a better picture of growth in attendance at the National Park.