What Happens to a Firm with High Operating Leverage When

question 87

Multiple Choice

What happens to a firm with high operating leverage when the overall level of sales is very high?

• A)the firm has higher levels of fixed costs.
• B)the firm will enjoy high profits.
• C)the firm will not break even in accounting terms.
• D)the firm will have a reduced level of fixed costs.

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Definitions:

Nature

The physical world and everything in it that is not made by human beings, including plants, animals, and landscapes.

Invisible Hand

A term coined by Adam Smith to describe the self-regulating nature of the marketplace, where individuals' pursuit of their own self-interest often leads to beneficial effects for the society as a whole.

Adam Smith

An 18th-century Scottish economist and philosopher, best known for his works "The Wealth of Nations," which is considered the foundation of modern economic theory.

Competitive Market

A market structure characterized by a large number of sellers and buyers, where no single entity can dictate prices, leading to efficient distribution of goods and services.