Question

- Assighment 3 Layout References Mailings Review View 12 -AAA A2 PE A be X2 X? A A E 3 = =::. . Q3) Demand Forecasting Problem (20 points) A retailer store will make a decision on the inventory level to satisfy the demand in the next season. To ensure the inventory decision is optimal, the firm must conduct a solid demand forecasting. In the first step, the retailer store management group collects the historical demand data, which is given in excel data file 1. Given the demand data in the past, how would you forecast the demand in the next season? Suppose the demand can take continuous values. In the second step, the firm management group realizes that the demand is not purely random, but instead depends on the firm's decision on the retail price. Hence, to precisely predict the future demand, it is better to use the price as one input to predict the output (demand) in order to put the impact of price into consideration. To improve the demand forecasting, the management group collects the data of prices corresponding to each historical demand data point. Please refer to the excel data file 2 for the detailed data of price/demand pairs. We know for the next season, the firm's decision on retail price is $10. How would you forecast the demand based on the new data set? And how precise is the demand forecasting in this step? Comparing the demand forecasting in the above two steps, what are the differences between them? Which one is preferable and why? English (US)

Answer 1

Answer:-

Demand Forecasting is essential for a firm to enable it to produce the required quantities at the right time and arrange well in advance for the various factor of production.It reduces the uncertainty and make available the economic resources.

In the first step:-

It is based on the analysis of past deamnd for that product or the servises in the present market condition. After gathering information about the various aspect of the market and demand based on the past, an attempt may be made to estimate future demand.

For example- suppose we sold 200,250,300 units of product X in the month of Jaunary, February and March. Now we can say that there will be a demand for 250 units approx, in the month of April, if the market condition remain the same.

In Second Step-

The price factor is another variable to be included in deamnd analysis.Here one has to consider the price of the product and also its substitute and complements. One may also consider the price difference between the product concerned and its substitute and complements.Price as a determinant of the volume of sales of consumer non-durables is sometimes more important through cross elasticity than it is directly in terms of price elasticity.Direct price elasticity can be expected to be more important with respect to those consumer non-durables which are subject to shortage and are free from risk of changes of styles.

• Second method is more appropriate because it consider all the things relating to the demand of a product in the market.