Sales Forecast Modeling
Monica Geller must generate a sales forecast to convince the loan officer at a local bank of the viability of The Iridium, a trendy restaurant on 65th and Broadway in New York City. Geller assumes that next-period sales are a function of current income, advertising, and advertising by a competing restaurant.
A. Write an equation for predicting sales if Geller assumes that the percentage change in sales is twice as large as the percentage change in income and advertising but that it is only one-half as large as, and of the opposite sign of, the percentage change in competitor advertising. Use the variables S = sales, Y = income, A = advertising, and CA = competitor advertising.
B. During the current period, sales total $500,000, median income per capita in the local mar- ket is $71,400, advertising is $20,000, and competitor advertising is $66,000. Previous period levels were $70,000 (income), $25,000 (advertising), and $60,000 (competitor advertising). Forecast next-period sales.