Firm A employs a high degree of operating leverage; Firm B takes a more conservative approach. Which of the following comparative statements about firms A and B is true?
A)A has a lower break-even point than B, but A's profit grows faster after the breakeven.
B)A has a higher break-even point than B, but A's profit grows slower after the breakeven.
C)B has a lower break-even point than A, but A's profit grows faster after the breakeven.
D)B has a lower break-even point than A, and profit grows the same rate for both companies after the break-even point.

Question

Quizplus · Accepted Answer

Firm A, with high operating leverage, has higher fixed costs leading to a higher break-even point. However, after breakeven, its profits grow faster due to lower variable costs per unit.

Firm a Employs a High Degree of Operating Leverage; Firm