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Using the semi-average method, determine the trend line equation for the following sales data (in tonnes) for the year 1979: Jan: 280, Feb: 300, Mar: 280, Apr: 280, May: 270, Jun: 240, Jul: 230, Aug:

Economics

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Answer

Yt=310−10TY_t = 310 - 10T

Step-by-step solution

4 steps
  1. Divide the data into two equal halves.

    There are 12 data points (months from January to December 1979).
    First half (Months 1-6): 280, 300, 280, 280, 270, 240
    Second half (Months 7-12): 230, 230, 220, 200, 210, 200

  2. Calculate the semi-average for each half.

    First semi-average (S1S_1):

    S1=280+300+280+280+270+2406=16506=275S_1 = \frac{280 + 300 + 280 + 280 + 270 + 240}{6} = \frac{1650}{6} = 275

    This average corresponds to the mid-point of the first half. The months are 1, 2, 3, 4, 5, 6. The mid-point is between month 3 and month 4, which is T1=3.5T_1 = 3.5.

    Second semi-average (S2S_2):

    S2=230+230+220+200+210+2006=12906=215S_2 = \frac{230 + 230 + 220 + 200 + 210 + 200}{6} = \frac{1290}{6} = 215

    This average corresponds to the mid-point of the second half. The months are 7, 8, 9, 10, 11, 12. The mid-point is between month 9 and month 10, which is T2=9.5T_2 = 9.5.

  3. Determine the trend line equation Yt=a+bTY_t = a + bT.

    We have two points (T1,S1)=(3.5,275)(T_1, S_1) = (3.5, 275) and (T2,S2)=(9.5,215)(T_2, S_2) = (9.5, 215).

    Calculate the slope (bb):

    b=S2−S1T2−T1=215−2759.5−3.5=−606=−10b = \frac{S_2 - S_1}{T_2 - T_1} = \frac{215 - 275}{9.5 - 3.5} = \frac{-60}{6} = -10

    Calculate the y-intercept (aa) using one of the points, for example (3.5,275)(3.5, 275):

    S1=a+bT1S_1 = a + bT_1 275=a+(−10)(3.5)275 = a + (-10)(3.5) 275=a−35275 = a - 35 a=275+35a = 275 + 35 a=310a = 310
  4. Write the trend line equation.

    The trend line equation is Yt=a+bTY_t = a + bT.

    Yt=310−10TY_t = 310 - 10T

    where YtY_t is the sales in tonnes and TT is the month number (e.g., T=1T=1 for January, T=2T=2 for February, etc.).

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