58 An insurance company gradually reduced its field offices

58. An insurance company gradually reduced its field offices from 51 to 38, to 23, to 15, to 11,

and finally to 7.

A model is estimated relating total operating cost, OpCost, to number of offices, Office, and

policies written, Policy.

OpCost = ß0 + ß1 Office + ß2 Policy + ?

A 2010 forecast of operating costs is subject to extrapolation error if

a. the number of policies for 2010 not known with certainty

b. Policy variable may not belong in 2010 model

c. the company consolidates to 3 offices

d. the company splits up into 45 offices

e. any of these

59. A manufacturer forecasts labor cost, LabCost, by the number of workers, NWorkers:

LabCost = ß0 + ß1 NWorkers + ?

In which of the following situations will increased forecasting error not occur?

a. Company health care insurance costs increase

b. Higher paid workers are hired to operate the new equipment

c. Company starts free college tuition plan

d. More part-time workers hired unqualified for pension plan

e. Increased forecasting errors are likely for all of these

60. Prediction intervals in regression output are valid for forecasting purposes only if, for the

period being forecast,

a. values of independent variables are known with certainty

b. the model does not change

c. independent variables are not outside their range during the estimation period

d. all of these

e. none of these

61. Which independent variable can’t be known with certainty for next year’s workers on longterm

contracts?

a. the year

b. worker\'s age (in years)

c. worker\'s experience with company (in years on the job)

d. the worker\'s health (number of sick days off work)

e. all of above can be known with certainty

Solution

58. Since model said that company finally reduce the offices to 7 so the option said \"the company consolidates to 3 offices\"is correct.

59. In all the given situations. So option e is correct.

60. Prediction intervals in regression output are valid for forecasting purposes only if, for the period being forecast, the values of independent variables are known with certainty, the model does not change, and independent variables are not outside their range during the estimation period. So option e is correct.

61. the year is certain, worker\'s age (in years) will certain, worker\'s experience with company (in years on the job) will certain but the worker\'s health (number of sick days off work) cannot be certain. So option d is correct.