Considering the S&P 500 Index, if each company's stock price increased by 10%:
A. the weights in the index would remain the same.
B. the companies with fewer shares would gain more weight at the expense of the companies with greater shares.
C. the companies with the most shares outstanding would have even greater weight after the increase.
D. the weights in the index would change to reflect the percentage changes in the prices of the various stocks.
Answer: A
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Suppose the actual and expected price levels in an economy are initially equal. However, the actual price level falls eventually due to a change in economic conditions. Which of the following will occur in the long run?
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A monopolist earns $80 million annually and will maintain that level of profit indefinitely, provided no other firm enters the market. If another firm successfully enters the market, the incumbent's profits remain at $80 million the first period, but fall to $35 million annually thereafter. The opportunity cost of funds is 20 percent, and profits in each period are realized at the beginning of each period. If the monopolist can earn $45 million indefinitely by limit pricing, should it do so?
A. No, it will earn $270 million in present value if it does this. B. No, it will earn $225 million in present value if it does this. C. Yes, it will earn $270 million in present value if it does this. D. Yes, it will earn $225 million in present value if it does this.