The controller of a small construction company is attempting to forecast expenses for the next year. He collects quarterly data on expenses (in $1,000s) over the past 5 years, a portion of which is shown in the accompanying table.

Year................. Quarter.............. Expenses

2006........................ 1................... $2,136

2006........................ 2..................... 2,253

⋮.............................. ⋮........................... ⋮

2010........................ 4......................3,109

a. Estimate a linear trend model with seasonal dummy variables and compute the MSE and MAD of insample forecast errors.

b. Estimate an exponential trend model with seasonal dummy variables and compute the resulting MSE and MAD.

c. Which model is more appropriate? With this model, forecast expenses for year 2011.