Problem
1. Explain the product life-cycle model as developed by Bass. Explain how a PLC model is estimated. What data is employed in the estimation of the Bass model?
2. Using the Kodak Polaroid data set (aggr.sav or aggr.txt) I'd like you to:
(a) Show the product life-cycle for instant cameras (i.e., produce a graph of sales over time remembering to remove the seasonal component and to show annual sales instead of bimonthly sales.
(b) Estimate a Bass type product life-cycle model for this data. Does the product life cycle fit the data in your opinion? Hint: Please remember to remove seasonality during estimation. Also, Kodak and Polaroid instant camera units sold are variables "ku" and "pu" respectively. You may create a total units sold as instant = ku + pu. Seasonal dummies are included in the data file.
(c) Optional for extra credit: Create a demand model using other factors included in the dataset. Compare the fit of the Bass model to a simple demand model. Do you think simple R-squared is useful here for comparing the fit of Bass model and simple demand model? Why or why not? Please explain your reasons of preferring one to the other based on RMSE standard. (Hint: Since the dependent variables is the same (demand for instant cameras) then RMSE is a proper way to compare models (similar to picking the model with the higher likelihood).You may look at https://en.wikipedia.org/wiki/Root-mean-square_deviation for more details of RMSE if you are not familiar with this concept.)
1. Briefly explain the Polaroid econometric model of camera demand. (Hint: limit yourself to less than one page!) What is the relationship between the PLC and Polaroid models?
2. What are some of the variants of the simple Bass model? What are the limitations of the Bass model?
3. What is a reservation value? How are reservation values used in economic theory? Can reservation values be measured?
The response should include a reference list. Double-space, using Times New Roman 12 pnt font, one-inch margins, and APA style of writing and citations.