The Higher the Degree of Operating Leverage, the Greater Is

question 222

True/False

The higher the degree of operating leverage, the greater is the risk of forecasting error.

Understand the basic components and functions of the circular flow model in a market economy.

Identify the roles of households and businesses within the market system.

Comprehend the process and importance of income distribution and resource allocation in a market economy.

Recognize the factors that lead to the efficiency of the market system, including specialization and division of labor.

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Definitions:

Long-run Cost Structure

The pattern of costs that a firm faces over a long period when it is free to adjust all of its input levels, including investment in new plant and equipment.

Competitive Industry

An industry characterized by many firms offering similar or slightly differentiated products, leading to a high degree of competition and typically lower prices.

Increasing-cost Industry

An industry in which the costs of production increase as the industry expands, often due to limitations in resources or factors of production.