Based on annual data from 2000-2010, the Gadget Company estimates that

Based on annual data from 2000-2010, the Gadget Company estimates that sales are growing according to a linear trend:

Q = 50,000 + 200t

where t is time and t = 0 in 2000.

a. Forecast sales for 2013.
b. Do you see any problems with this forecasting method?

ANSWER

a. 52,600
b. The equation is based on data from 2000-2010. The further away from the final year, the less likely the equation is to be correct, as more factors may alter the trend seen in the data. A further issue is that the model is based on only 11 observed values.