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    Forecasting consumer spending based on price index data

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    Explore how a firm determines the optimal scale of a plant for a given rate of output and why this determination relates to longer-run strategies versus current operations. Also, the differences between economies of scale and economies of scope and how firms can benefit from each.

    See the attached file for the second part.

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    Solution Preview

    Dear Student,

    Please open the attached Excel Worksheet and Tab "Motor Vehicles and Housing" to find the computations, explanations and graphs related to the data given. The most relevant values are marked with yellow highlighting.

    This solution deals with only a part of the whole project; therefore the relationship between the data given and the question in the main section is not clearly defined. I will provide the following suggestions for finding the connections between the two.

    The demand for Motor Vehicles and Parts has been forecasted to be 473.6 in 2013 and 485.0 in 2014. The demand for Housing and Utilities has been forecasted to be 2050.2 in 2013 and 2104.0 in 2014. Using these forecasted values, the company can plan their future production (output). In the short run, the company may increase their current production to meet the demand, if there are free resources available (labor, machinery, and raw materials). If there are no free resources, the company may have to plan for expansion, and it usually requires longer-term planning.

    The optimal level of production optimizes the company plant use and ...

    Solution Summary

    This solution provides an Excel worksheet computation of future demand based on data given. The independent variable used is the consumer price index 1964-2012 and the dependent variables include motor vehicles and parts, and housing and utilities for the same time period. Scatterplots, trend lines, and R squares are computed and evaluated. Finally, the estimates for the demand for motor vehicles and the demand for housing and utilities are forecasted for years 2013 and 2014.