Multiple choice

Directions: For this question, select the best of the answer choices given.

In the United States profits from sales of Grainco's biggest selling product, cornflakes, have dropped by 30 percent over the last 3 years. During this same time the value of a share of Grainco stock rose by over 20 percent. This is puzzling because the value of a stock usually decreases when a company's sales decrease. Which of the following, if true during the last 3 years, most helps to explain why the value of a share of Grainco stock moved in the way that it did?

  1. Severe drought in the Midwest destroyed a large percentage of the corn crop, forcing Grainco to buy less corn.

  2. Grainco closed a food processing plant in a locality that offered cheap labor and low taxes.

  3. Profits from sales of Grainco oatmeal, which account for a large part of Grainco's total sales and profits, increased dramatically in both the foreign and domestic markets.

  4. Grainco employees formed a union that helped them get higher salaries and increased medical benefits.
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

C is correct because if Grainco's oatmeal sales and profits increased dramatically, this could explain why the stock rose despite declining cornflake profits - oatmeal might be the main profit driver. A discusses drought forcing Grainco to buy less corn, which doesn't explain why profits dropped but stock rose. B mentions closing a plant, which seems like it would hurt profits, not help stock value. D discusses employee unionization and higher salaries/benefits, which would typically decrease profits, not increase stock value.

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