If Sales Increase from $80,000 Per Year to $120,000 Per

question 110

Multiple Choice

If sales increase from $80,000 per year to $120,000 per year,and if the degree of operating leverage is 5,then by what percentage should operating income increase?

• A) 167%.
• B) 250%.
• C) 100%.
• D) 334%.

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Definitions:

Inferior Good

A type of good whose demand decreases when consumer income rises, unlike normal goods, which have a positive correlation with income.

Normal Good

A type of good for which demand increases as the income of the consumer increases, showing a positive relationship between income and demand.

Demand Function

A mathematical formula that describes the relationship between the quantity of a good or service demanded and its price, along with other factors like income and the prices of related goods.

Substitution Effect

The effect observed when consumers replace more expensive items with cheaper alternatives due to changes in relative price levels, affecting demand for goods.