9781118041581

selecting particular values of a and b. Suppose a 330 and b 1. With these

values, the demand equation becomes

[4.1]

We plot this demand equation in Figure 4.1. Notice that the demand curve lies

roughly along the scatter of observations. In this sense, the equation provides

a “reasonable fit” with past observations. However, the fit is far from perfect.

Table 4.2 lists Equation 4.1’s sales predictions quarter by quarter. For

instance, in the second column, the first quarter’s sales prediction (at a price

of $250) is computed as 330  250 80. The third column lists actual sales.

The fourth column lists the differences between predicted sales (column 2)

Q 330 1P.

136 Chapter 4 Estimating and Forecasting Demand

FIGURE 4.1

Four Years of Prices

and Quantities

The figure plots the

average number of

seats sold at different

average prices over the

last 16 quarters. A

“guesstimated”

demand curve also is

shown.

Average One-Way Fare

$270

260

250

240

230

220

Demand curve: Q = 330 – P

0 50 100 150

Number of Seats Sold per Flight

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