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Demand for a product and the forecasting department’s forecast (naïve model) for a product are shown below. Compute the mean squared error.​PeriodActual DemandForecasted Demand112- -215123141541816

Question

Demand for a product and the forecasting department’s forecast (naïve model) for a product are shown below. Compute the mean squared error.​PeriodActual DemandForecasted Demand112- -215123141541816

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Solution

To calculate the Mean Squared Error (MSE), we first need to calculate the error for each period, square these errors, sum them up, and then divide by the number of periods. The error for each period is calculated as (Actual Demand - Forecasted Demand).

Here's the step-by-step calculation:

  1. Calculate the error for each period:

    • Period 2: 15 - 12 = 3
    • Period 3: 14 - 15 = -1
    • Period 4: 18 - 16 = 2

  2. Square these errors:

    • Period 2: 3^2 = 9
    • Period 3: (-1)^2 = 1
    • Period 4: 2^2 = 4

  3. Sum up these squared errors: 9 + 1 + 4 = 14

  4. Divide by the number of periods (3 in this case): 14 / 3 = 4.67 (rounded to two decimal places)

So, the Mean Squared Error (MSE) is 4.67.

This problem has been solved

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