When a firm's cost structure consists principally of fixed costs,:
A)it is said to have a great deal of operating leverage.
B)those costs consist of rent, depreciation, direct labor, management salaries, direct materials, and utilities.
C)the firm might be a factory with many people and few machines.
D)All of the above

Question

Quizplus · Accepted Answer

When a firm's cost structure consists principally of fixed costs, it is said to have a great deal of operating leverage. Fixed costs do not vary with changes in output or sales volume, and therefore, any increase in sales or production results in a greater increase in profits due to the higher operating leverage.

When a Firm's Cost Structure Consists Principally of Fixed Costs