In His Book, an Inquiry into the Nature and Causes

question 296

Multiple Choice

In his book, An Inquiry into the Nature and Causes of the Wealth of Nations, Adam Smith described a visit he made to a

• A)car factory.
• B)pin factory.
• C)washing machine factory.
• D)farm.

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Definitions:

Variable Expenses

Costs that vary directly with the level of production or sales volume.

Break-even Point

The point at which total costs and total revenues are exactly the same, yielding neither a profit nor a loss.

Degree of Operating Leverage

The degree of operating leverage is a financial ratio that measures the sensitivity of a company's operating income to its sales, indicating how earnings before interest and taxes are affected by sales volume.

Fixed Expenses

Costs that do not vary with the level or amount of goods or services produced or sold.