If a firm is planning to operate in an environment in which there will be a great deal of variability in the level of revenues, then the firm:
A) should structure its cost structure to have high fixed costs and higher total variable costs.
B) should structure its cost structure to have high fixed costs and consequently lower per unit variable costs.
C) should structure its cost structure to have low fixed costs and consequently higher per unit variable costs.
D) should leave the cost structure unchanged.

Question

Quizplus · Accepted Answer

When a firm is operating in an environment with high revenue variability, it is best to have low fixed costs and higher per unit variable costs. This allows the firm to adjust its production levels and costs in response to changes in revenue without incurring high levels of fixed costs that cannot be adjusted. This flexibility is important in turbulent environments and can improve the sustainability and profitability of the firm. Therefore, option C is the best choice.

If a Firm Is Planning to Operate in an Environment