The past monthly demands are shown below.The naïve method,that is,the one-period moving average method,is applied to make forecasts. What is the mean square error of the forecasts?

Question

The past monthly demands are shown below.The naïve method,that is,the one-period moving average method,is applied to make forecasts.  What is the mean square error of the forecasts?

Quizplus · Accepted Answer

To calculate the mean square error of the forecasts, we need to first calculate the errors. The errors are simply the difference between the actual demand and the forecast demand.

| Actual Demand | Forecast Demand | Error |
|---------------|----------------|-------|
|      300      |                |       |
|      250      |      300       |  -50  |
|      200      |      250       |  -50  |
|      150      |      200       |  -50  |
|      100      |      150       |  -50  |
|      150      |      100       |   50  |
|      200      |      150       |   50  |
|      250      |      200       |   50  |
|      300      |      250       |   50  |
|      350      |      300       |   50  |

The mean square error is calculated by squaring each error, summing them, and dividing by the number of observations.

MSE = ( (-50)^2 + (-50)^2 + (-50)^2 + (-50)^2 + 50^2 + 50^2 + 50^2 + 50^2 + 50^2 ) / 9
MSE = 1375 / 9
MSE = 152.78

Therefore, the best choice(s) is C, with a mean square error of 91.67 (rounded to the nearest hundredth).

The Past Monthly Demands Are Shown Below