Firm a Produces Semiconductors Using Highly Technical Machinery; Firm B

question 11

Multiple Choice

Firm A produces semiconductors using highly technical machinery; Firm B is a retail clothing store. Consider which firm employs a higher degree of operating leverage and then answer the following question: "Which of the following comparative statements about firms A and B is true?"

• A) A has a lower break-even point than B, but A's profit grows faster after the break-even.
• B) A has a higher break-even point than B, but A's profit grows slower after the break-even.
• C) B has a lower break-even point than A, but A's profit grows faster after break-even.
• D) B has a lower break-even point than A, and profit grows at the same rate for both companies after the breakeven point.

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Definitions:

Efficient

Refers to a level of performance that uses the least amount of inputs to achieve the highest amount of output.

Utility Possibilities Frontier

A curve that shows the maximum feasible amount of two goods that can be produced with available resources and technology, indicating the trade-offs and efficiency in production.

Utility

In economics, utility refers to the satisfaction or pleasure derived by consumers from consuming goods or services.

Efficient

An attribute of a market or process where resources are allocated in the most effective way, yielding the maximum benefit for a given set of resources.