Question: The forecasting staff for the Prizer Corporation has developed a model to predict sales of its air-cushioned-ride snowmobiles. The model specifies that sales S vary

The forecasting staff for the Prizer Corporation has developed a model to predict sales of its air-cushioned-ride snowmobiles. The model specifies that sales S vary jointly with disposable personal income Y and the population between ages 15 and 40, Z, and inversely with the price of the snowmobiles P. Based on past data, the best estimate of this relationship is

where k has been estimated (with past data) to equal 100.

a. If Y = $11,000, Z = $1,200, and P = $20,000, what value would you predict for S?

b. What happens if P is reduced to $17,500?

c. How would you go about developing a value for k?

d. What are the potential weaknesses of this model?

S=k YZ

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