Simple exponential smoothing (with α = 0.2) is being used to forecast monthly beer sales at Gordon’s Liquor Store. After observing April’s demand, the predicted demand for May is 4,000 cans of beer. a...

Simple exponential smoothing (with α = 0.2) is being used to forecast monthly beer sales at Gordon’s Liquor Store. After observing April’s demand, the predicted demand for May is 4,000 cans of beer.

a At the beginning of May, what is the prediction for July’s beer sales?

b Actual demand during May and June is as follows: May, 4,500 cans of beer; June, 3,500 cans of beer. After observing June’s demand, what is the forecast for July’s demand?

c The demand during May and June averages out to = 4,000 cans per month. This is the same as the forecast for monthly sales before we observed the May and June data. Yet after observing the May and June demands for beer, our forecast for July demand has decreased from what it was at the end of April. Why?