Problem:
Dell uses the CR5 chip in some of its laptop computers. The prices for the chip during the past 12 months were as follows:
|
Month
|
Price Per Chip
|
Month
|
Price Per Chip
|
|
January
|
$1.80
|
July
|
1.80
|
|
February
|
1.67
|
August
|
1.83
|
|
March
|
1.70
|
September
|
1.70
|
|
April
|
1.85
|
October
|
1.65
|
|
May
|
1.90
|
November
|
1.70
|
|
June
|
1.87
|
December
|
1.75
|
Required:
Question 1) Use a 2-month moving average on all the data and plot the averages and the prices.
Question 2) Use a 3-month moving average and add the 3-month plot to the graph created in part (a).
Question 3) Which is better (using the mean absolute deviation): the 2-month average or the 3-month average?
Question 4) Compute the forecasts for each month using exponential smoothing, with an initial forecast for January of $1.80. Use a = .1, then a = .3, and finally a = .5. Using MAD, which a is the best?
Provide correct solution of the given problem with step by step calculations.