-In the Above Figure, What Would Be the Profit-Maximizing Output

question 137

Multiple Choice

-In the above figure, what would be the profit-maximizing output and price for this natural monopolist?

• A) 1,200; $3
• B) 900; $7
• C) 700; $7
• D) 700; $10

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Definitions:

Financial Leverage

A strategy involving the use of borrowed money to increase the potential return of an investment.

Operating Leverage

The use of fixed as opposed to variable cost in a firm’s cost structure.

Combined Leverage

Refers to the use of both operating and financial leverage by a company to assess the potential impact on earnings due to changes in sales.

Degree of Financial Leverage

A measure that quantifies the sensitivity of a company's earnings per share to fluctuations in its operating income due to the use of fixed cost financing.