If the Economy Is Shrinking, Firms with High Operating Leverage

question 46

Multiple Choice

If the economy is shrinking, firms with high operating leverage will experience

• A) larger decreases in profits than firms with low operating leverage.
• B) similar decreases in profits as firms with low operating leverage.
• C) smaller decreases in profits than firms with low operating leverage.
• D) no change in profits.

---

Definitions:

Liability

The state of being legally responsible for something, particularly in terms of debts or legal obligations.

Certificate of Authority

An official document granting a company the right to do business in a jurisdiction beyond where it was originally incorporated.

Official Authorization

Formal approval granted by an authorized entity, often required for specific actions or operations.