Question: An economist for Pittsburgh Brewing Company has hypothesized a forecasting model in which the sales in any particular month are directly proportional to the square of the wages of Pittsburgh Steelworkers in the previous month. plus a random error.

1. If S = sales, W = steelworkers’ wages, t = time, and e = the random error term, formulate an equation to forecast this month’s sales and another equation to forecast next month’s sales.
2. If the random errors average out to zero, and if sales this month are $900,000 and wages last month were $2,000, what should next month’s sales be if this month’s wages decline to $1,800?

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