If a Firm Doubled Its Level of Fixed Costs but Maintained

question 40

Multiple Choice

If a firm doubled its level of fixed costs but maintained its operating leverage,then one explanation may be that:

• A) depreciation expense increased to offset the increase.
• B) sales revenue also doubled and the proportion of variable costs did not change.
• C) sales revenues declined and the proportion of variable costs doubled.
• D) pretax profits decreased.

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Definitions:

Precommitment

The action of committing oneself to a course of action or decision before facing circumstances that might make that course of action more difficult.

Time Inconsistency

The tendency of people to change their plans about future actions because of a preference for immediate gratification over future benefits, leading to conflicts between long-term goals and short-term desires.

Running Partner

A companion or fellow athlete who runs alongside another person to provide motivation, pacing, or company.

Market Transactions

Exchanges of goods, services, or assets between parties in a market.