Operating leverage is present when a firm has fixed operating costs.

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Operating leverage refers to the degree to which a firm's operating income changes in response to a change in its sales revenue. When a firm has fixed operating costs, its operating leverage is higher, as a small change in sales volume can lead to a much larger change in profits. This is because fixed costs remain the same regardless of sales volume, which means that as sales increase, the proportion of revenue that goes toward covering fixed costs decreases, allowing for greater profit margins.

Operating Leverage Is Present When a Firm Has Fixed Operating