If the economy is growing,firms with high operating leverage will experience __________.
A)higher increases in profits than firms with low operating leverage
B)similar increases in profits as firms with low operating leverage
C)smaller increases in profits than firms with low operating leverage
D)no change in profits
E)none of the above

Question

Quizplus · Accepted Answer

Firms with high operating leverage have a higher proportion of fixed costs, which means that as revenue grows, their profits will increase at a faster rate than firms with low operating leverage. Therefore, they will experience higher increases in profits than firms with low operating leverage if the economy is growing.

If the Economy Is Growing,firms with High Operating Leverage Will