A Firm That Has a 2

question 78

Multiple Choice

A firm that has a 2.5 DOL (degree of operating leverage) would find that an 8% increase in EBIT would result from a ____ increase in sales.

• A) 3.2%
• B) 5.4%
• C) 20.0%
• D) 2.0%

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Definitions:

Margin

Margin refers to the difference between the selling price of a good or service and its cost of production, also used to describe profit margin or markup.

Total Revenue Product

The total revenue generated by a factor of production, calculated by multiplying the marginal product of the factor by the market price of the output.

Marginal Revenue Product

The additional revenue generated from utilizing one more unit of an input, like labor or capital.

Substitution Effect

The shift in consumer behavior toward different products as a result of changes in their relative costs, prompting the replacement of one item with another.