All Else Being Equal,a Company with a High Operating Leverage

question 157

Multiple Choice

All else being equal,a company with a high operating leverage will have:

• A)relatively low fixed costs.
• B)relatively high variable costs.
• C)a relatively low risk.
• D)a relatively high contribution margin ratio.

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Definitions:

Cost-Output Elasticity

A measure of how responsive the total cost of production is to changes in the quantity of output produced.

Learning Curve

A graphical representation showing how an increase in learning or experience can lead to improved efficiency and a decrease in the time required to complete a task.

Total Cost Function

A mathematical relationship that represents the total cost of production depending on the level of output or other variables.

Economies of Scale

Cost advantages that enterprises obtain due to their scale of operation, with a reduction in per-unit cost as the size of a facility and the usage levels of other factors of production increase.