Question: A firm has determined that its average level of sales (S _t ) per week in $1,000s during a given year depends on the previous year's level of sales (S _t-1 ), the previous year's level of advertising (A _t-1 ) per month in $1,000s, and the current year's rate of annual industry growth (G _t ) in percentage terms. The firm has also determined that the level of industry growth in the current period depends on the previous period's rate of industry growth (G _t-1 ) and on current period sales by the firm. During the current period, the firm's average level of sales was $100,000, advertising was $10,000, and the rate of growth in the industry was 2%. The firm estimated the following two-equation econometric model:

S _t = 5 + 0.50 S _t-1 + 0.10 A _t-1 + 2 G _t and G _t = 0.5 G _t-1 + 0.25 S _t

1. Formulate a single-equation forecasting equation from this model.
2. Forecast the level of sales in the next period.

Price: $2.99

Solution: The downloadable solution consists of 1 pages
Deliverable: Word Document