At a Base Sales Level of $400,000, a Firm Has

question 15

Multiple Choice

At a base sales level of $400,000, a firm has a degree of operating leverage of 2 and a degree offinancial leverage of 1.5. The firm's degree of total leverage is ____________.

• A) 1.3
• B) 0.5
• C) 3.0
• D) 3.5

---

Definitions:

Excess Capacity

This term refers to a situation where a firm produces at a lower scale than its potential, indicating that there are unused resources or the firm is operating below its efficient scale.

Profit-Maximizing Level

The point of operation where a firm achieves its highest profit, determined by the intersection of marginal cost and marginal revenue.

Marginal Cost

The cost escalation associated with the production of one more unit of a product or service.

Economic Loss

Occurs when total cost exceeds total revenue, not covering all explicit and implicit costs.