Firm a Employs a High Degree of Operating Leverage; Firm

question 81

Multiple Choice

Firm A employs a high degree of operating leverage; Firm B takes a more conservative approach. Which of the following comparative statements about firms A and B is true?

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

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Definitions:

Equilibrium Interest Rate

The interest rate at which the demand for money balances equals the supply of money, resulting in a stable economic situation without a tendency for the interest rate to change.

Loanable Funds

The money available for borrowing, encompassing both the savings of individuals and institutions and the money created by banks.

Equilibrium Interest Rate

The interest rate at which the demand for funds equals the supply of funds, balancing savings with investment in the economy.

Loanable Funds Demanded

The total amount of funds sought after by borrowers in the financial market at a given interest rate.