Operating Leverage Measures

question 22

Multiple Choice

Operating leverage measures

• A) the effect of variable costs on the responsiveness of the firm's earnings before interest and taxes to changes in the level of sales.
• B) the effect of fixed operating costs on the responsiveness of the firm's earnings before interest and taxes to changes in the level of gross income.
• C) the effect of fixed operating costs on the responsiveness of the firm's earnings before interest and taxes to changes in the level of sales.
• D) none of the above.

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Definitions:

Returns to Scale

The rate at which output increases as inputs are increased proportionately.

Industry Supply Curve

A graphical representation that shows the relationship between the price of a good and the total output of that good by all firms in the industry.

Demand Curve

A graph showing the relationship between the price of a good and the quantity of that good which consumers are willing to purchase at different prices.

Deadweight Loss

A loss of economic efficiency that occurs when equilibrium for a good or service is not achieved or is not achievable.