If There Is a Very Strong Correlation Between Two Variables

question 103

Multiple Choice

If there is a very strong correlation between two variables, then the coefficient of correlation must be

• A)much larger than 1, if the correlation is positive
• B)much smaller than 1, if the correlation is negative
• C)either much larger than 1 or much smaller than 1
• D)None of these answers is correct.

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Definitions:

Fixed Costs

Costs that do not vary with the level of output or sales over the short term, such as rent or salaries.

Variable Costs

Costs that vary in direct proportion to changes in production or sales volume, such as materials and labor.

Operating Leverage

A measure of how revenue growth translates into growth in operating income, determined by the proportion of fixed costs to variable costs.

Variable Costs

Costs that change directly in proportion to changes in the volume of production or activity level, such as raw materials, labor costs directly tied to production, and utility costs for manufacturing facilities.