Using Graphs to Illustrate the Concepts, Absolute Advantage

question 187

Multiple Choice

Using graphs to illustrate the concepts, absolute advantage

• A)is shown with differences in slope of a production possibilities curve; comparative advantage is shown with a lower curve.
• B)requires a very steep curve; comparative advantage requires a curve with a shallow slope.
• C)on one good requires that the slope of the production possibilities curve be steeper for that good.
• D)is shown with a higher production possibilities curve; comparative advantage is shown with differences in slope of the curves.

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Definitions:

Operating Leverage

A measure of how sensitive a company's operating income is to a change in its revenues, indicating the proportion of fixed costs in the company's cost structure.

Contribution Format Income Statement

An income statement format that separates fixed costs from variable costs, thus showing the contribution margin.

Degree of Operating Leverage

A financial ratio that measures the sensitivity of a company's operating income to its sales, indicating how revenue growth translates into growth in operating income.

Variable Expenses

Costs that change in proportion to the level of business activity or production volume.