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    Business Forecasting: Exponential Smoothing

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    HP uses the AMD chip in some of its desktop computers. The prices for the chip during the last 12 months were as follows:

    Month Price per Chip
    January $1.80
    February $1.67
    March $1.70
    April $1.85
    May $1.90
    June $1.87
    July $1.80
    August $1.83
    September $1.70
    October $1.65
    November $1.70
    December $1.75

    A. Use a 2 month moving average on all the data and plot the averages and prices.
    B. Use a 3 month moving average and add the 3 month plot to the graph created in part (A)
    C. Which is better (using the mean absolute deviation): the 2 month average or the 3 month average?
    D. Compute the forecasts for each month using exponential smoothing, with an initial forecast for January of $1.80 Use α = .3, and finally α = .5 Using MAD, which α is the best?

    Must show all work via excel.

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    Solution Summary

    This response compares the 2 month moving average and the 3 month moving average of HP.