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Business 620 Critical Thinking Three Salvatore’s Chapter 6: Discussion Questions: 1, 7, and 15. Problems: 7 and appendix problems 1 and 3 (pp. 256–257).

Salvatore’s Chapter 7: Discussion Questions: 3, 11, and 12. Problems: 4, 12, and 13.

Discussion Question 1:

a) What is forecasting? Why is it so important in the management of business firms and other enterprises? b) What are the different types of forecasting? c) How can the firm determine the most suitable forecasting method to use? Discussion Question 7: a) Which type of smoothing technique is generally better? b) How do we determine which of two smoothing techniques is better? c) How can we forecast the values of a time series that contains a secular trend as well as strong seasonal and random variations? Discussion Question 15: Explain why it is still useful to pursue forecasting even though it is often off the market by wide margins Problem 7: The following table represents data on three leading indicators for a three-month period. Construct the composite index (with each indicator assigned equal weight) and the diffusion index. Appendix Problem 1: The following table reports the Consumer Price Index for the Los Angeles area on a monthly basis from January 1998 to December 2000 (base year= 1982-1984). Eliminating the data for 2000, use Excel to forecast the index for all of 2000 using a three- and six-

month average. Which provides a better forecast for 2000 using the data provided? Appendix Problem 3: Forecast the data for 2000 again in Problem 1 with exponential smoothing with w=0.3 and w=0.7. Is this a better forecast than the moving average? Salvatoreâ€™s Chapter 7: Discussion Questions: 3, 11, and 12. Problems: 4, 12, and 13. Discussion Question 3: a) How is the law of diminishing returns reflected in the shape of the total product curve? b) What is the relationship between diminishing returns and the stages of production?

Discussion Question 11: Minimum wage legislation requires most firms to pay workers no less than the legistiated minimum wage per hour. Using marginal productivity theory, explain how a change in the minimum wage affects the employment of unskilled labor Discussion Question 12: It is always better to hire a more qualified and productive worker than a less qualified and productive one regardless of cost. True or false? Explain Problem 4: Ms. Smith, the owner and manager of the Clear Duplicating Service located near a university, is

contemplating keeping her shop open after 4pm and until midnight. In order to do so, she would have to hire additional workers. She estimated that the additional workers would generate the following total output (where each unit of output refers to 100 pages duplicated). If the price of each unit of output is $10 and each worker hired must be paid $40 per day, how many workers should Ms. Smith hire? Problem 12: Suppose that the production function for a commodity is given by Q=10 âˆšLK where Q is the quality of output, L is the quantity of labor, and K is the quantity of capital. a) Indicate whether this production function exhibits constant, increasing, or decreasing returns to scale. b) Does this production function exhibit diminishing returns? If so, when does the law of diminishing returns begin to operate? Could we ever get negative returns?

Problem 13: Indicate whether each of the following statements is true of false and give the reason. a) A firm should stop expanding output after reaching diminishing returns b) If large and small firms operate in the same industry, we must have constant returns to scale.

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