Poutine Company Is Considering Offering Long-Term Contracts to Many of Its

question 26

Multiple Choice

Poutine Company is considering offering long-term contracts to many of its non-contract employees (a switch from variable labour costs to fixed labour costs) .What is the impact of this decision?

• A)The increase in operating leverage results in greater variability in operating income.
• B)The increase in operating leverage results in less variability in operating income.
• C)The decrease in operating leverage results in greater variability in operating income.
• D)The decrease in operating leverage results in less variability in operating income.

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Definitions:

Negative Externalities

Costs suffered by a third party as a result of an economic transaction, which are not reflected in the transaction's price.

Taxed

The act of imposing financial charges on individuals or entities by a governmental organization in order to fund public spending.

Coase Theorem

A principle that suggests that if property rights are well-defined and transaction costs are negligible, parties will negotiate to correct externalities without the need for government intervention.

Externality Problems

Issues arising when the actions of individuals or firms have effects on third parties that are not reflected in market prices.