If Company a Has a Higher Degree of Operating Leverage

question 103

Multiple Choice

If company A has a higher degree of operating leverage than company B, then:

• A)company A is more profitable.
• B)company A's variable expenses are high.
• C)company A is less risky.
• D)company A's profits are more sensitive to percentage changes in sales.

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Definitions:

Profitable

A term used to describe a business or activity that generates more revenue than the expenses incurred in operating.

Economies of Scale

Cost advantages reaped by companies when production becomes efficient, as the cost per unit of output decreases with increasing scale.

Specialization of Labor

The division of labor where individuals focus on a limited scope of tasks or skills, leading to increased efficiency and productivity.

Average Fixed Costs

The fixed costs of production (costs that do not vary with the level of output) divided by the quantity of output produced.