Question: The president of a small manufacturing firm is concerned about the continual increase in manufacturing costs over the past several years. The following figures provide a time series of the cost per unit for the firm's leading product over the past eight years:
Year Cost/Unit($)
1 20.00
2 24.50
3 28.20
4 27.50
5 26.60
6 30.00
7 31.00
8 36.00
a. Construct a time series plot. What type of pattern exists in the data?
b. Use simple linear regression analysis to find the parameters for the line that minimizes MSE for this time series.
c. What is the average cost increase that the firm has been realizing per year?
d. Compute an estimate of the cost/unit for next year.