In general, the greater a firm's operating leverage, the higher its business risk.

Question

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Operating leverage refers to the degree to which a firm uses fixed costs in its operations. A firm with high fixed costs and low variable costs will have a higher operating leverage. This means that a small change in sales volume can have a larger impact on the firm's profits. As a result, a firm with high operating leverage is more risky as it is more vulnerable to changes in sales volume, which can affect its profitability. Therefore, the higher a firm's operating leverage, the higher its business risk.

In General, the Greater a Firm's Operating Leverage, the Higher