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Single order exponential smoothing

United Airways has tried out single order exponential smoothing for forecasting passenger demand. Below are recent results using alpha = 0.2, 0.4. and 0.6. Which alpha is best, based on this limited data?

Actual Forecast with Alpha Equal to
Period Passengers 0.2 0.4 0.6

-3 4,200 3,078 3,184 3,210
-2 4,900 3,302 4,090 3,804
-1 3,500 3,622 4,114 4,462

A. 0.2
B. 0.4
C. 0.6
D. any of the above (A,B, C) work equally well

Please explain

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Solution Summary

The solution determines the value of alpha which is the best for forecasting passenger demand.

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