FILE The controller of a small construction company is attempting to forecast expenses for the next year.

He collects quarterly data on expenses (in $ 1,000s)

over the past 5 years, a portion of which is shown in the accompanying table. The full data set is on the text website, labeled Expenses.

Year Quarter Expenses 2006 1 $2,136 2006 2 2,253

⋮ ⋮ ⋮

2010 4 3,109

a. Estimate a linear trend model with seasonal dummy variables and compute the MSE and MAD of in-sample forecast errors.

b. Estimate an exponential trend model with seasonal dummy variables and compute the resulting MSE and MAD.

c. Which model is more appropriate? With this model, forecast expenses for year 2011.