Assume that a brokerage firm concentrates on a few closely related industries. It has produced a set of estimates of earnings for 1985 and subsequently recorded the earn-ings that actually occurred. These data are given below:

Industry Firm Previous Earnings Estimated Earnings Actual Earnings

A 1 1.05 1.10 1.05

2 1.32 1.37 1.35

3 3.50 4.25 3.25

B 4 2.06 2.10 2.12

5 2.08 2.13 2.12

6 2.60 3.25 2.80

7 1.07 1.06 1.06

C 8 2.00 2.70 2.40

9 0.55 0.52 0.54

10 1.18 1.16 1.20

B. Calculate the mean square forecasted error for this firm.

C. Decompose the error by level of aggregation. That is, determine what percentage of the error was due to the inability to forecast earnings for this sector of the economy, what percentage was due to an inability to forecast each industry, and what percentage was due to an inability to forecast differences for each firm