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Forecasting using Moving Average

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Data covering the most recent 30 days are given in the following table for the price per gallon of regular gasoline at a local station.
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Day Price Day Price
1 2.53 16 2.46
2 2.35 17 2.60
3 1.91 18 2.10
4 2.20 19 2.01
5 1.77 20 2.14
6 3.26 21 2.03
7 1.63 22 2.68
8 2.73 23 2.59
9 2.41 24 2.99
10 2.72 25 2.94
11 2.87 26 1.77
12 1.49 27 2.62
13 2.92 28 3.19
14 3.53 29 3.01
15 2.74 30 2.10
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a. Compute a forecast for the next day's price by using a 3-day moving average. What is the forecast? What is the MSE for the last five observations?
b. Can you reduce the MSE for the last five observations by changing the moving average window (try 4-to10-day windows)?
c. Compute a forecast for the next day's price by using exponential smoothing with a=0.25 What is the forecast? What is the MSE for the last five observations?
d. Can you improve the MSE for the last five observations by changing the smoothing constant a?

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*Please show all work, use excel and identify the value and units measured.
(Notes for my own Use: Ch9:5)

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Solution Summary

This posting presents how to do forecasting with moving average method using excel modeling with criterion of Mean Square error and varying smoothing constant.

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Calculate a forecast of the demand using a 3 and 5 period moving average.

You sold the following number of flowers during the last two weeks. Calculate a forecast of the demand using a 3 and 5 period moving average. Graph these forecasts and the original data using excel. What does the graph show and which of the above forecasts is best and why.

Day 1 Demand Day Demand
1 200 8 150
2 134 9 182
3 157 10 197
4 165 11 136
5 177 12 163
6 125 13 157
7 146 14 169

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