Question

If a firm produced a product that was experiencing growth in demand, the smoothing constant alpha (reaction rate to differences) used in an exponential smoothing forecasting model would tend to be which of the following?
a) A very low percentage, less than 10%
b) 50% or more
c) The more rapid the growth, the lower the percentage
d) Close to zero
e) The more rapid the growth, the higher the percentage

Answer 1

Answer:

e. The more rapid the growth, the higher the percentage.

Explanation:

When using exponential smoothing for forecasting demand the data pattern should remain stationary. The value of smoothing constant alpha is between 0 and 1. The data used for financing smoothing should be with most recent forecast.