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

Question

Quizplus · Accepted Answer

Firms with low operating leverage have lower fixed costs and hence are less susceptible to decreases in profits during an economic downturn. Therefore, they will experience smaller decreases in profits than firms with high operating leverage.

If the Economy Is Shrinking,firms with Low Operating Leverage Will