If the Marginal Product of Labor Is Less Than the Average

question 135

True/False

If the marginal product of labor is less than the average product of labor, then the average product of labor is increasing.

Calculate and interpret the degree of operating leverage (DOL).

Define contribution margin and its role in pricing and cost management.

Recognize the distinct impacts of operating and financial leverage on business risk.

Explain how leverage affects a firm’s stock price and capital structure optimization.

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Definitions:

Absolute Purchasing Power Parity

The theory that, in the absence of transaction costs and other barriers, identical goods in different countries should have the same price when expressed in a common currency.

Transaction Costs

The expenses incurred when buying or selling goods and services, which may include commissions, fees, and the bid-ask spread.

Covered Interest Arbitrage

An investment strategy that involves exchanging domestic currency for a foreign currency, investing in foreign interest-bearing assets, and using forward contracts to hedge exchange rate risk.

Forward Contract

A special arrangement made between two parties to transact an asset at a pre-agreed price on a set date in the future.