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Question

# In the exponential smoothing method, which one of the following is true?

A
α1 and high value of α is used for stable demand
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B
0α1 and high value of α is used for stable demand
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C
0α1 and high value of α is used for unstable demand
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D
α0 and high value of α is used for unstable demand.
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Solution

## The correct option is C 0≤α≤1 and high value of α is used for unstable demand In exponential smoothing forecast, Ft=Ft−1+α(Dt−1−Ft−1) where, α=2n+1 (n = number of periods) Case I: For n→∞, α=0, i.e. stable demand. Case II: For n→1, α=1 i.e. unstable demand. So, 0≤α≤1 and high value of α is used for unstable demand. Points to Remember : Responsiveness indicates that forecast has a fluctuating and swinging pattern. It is preferred for new products and for that number of period is kept two i.e. n→1 Stability represents that a forecast pattern is flat or has less fluctuation. It is preferred for old existing products and for that number of period kept large i.e. n→∞

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