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 break-even.
B) A has a higher break-even point than B, but A's profit grows slower after the break-even.
C) B has a lower break-even point than A, but A's profit grows faster after break-even.
D) B has a lower break-even point than A, and profit grows the same rate for both companies after the breakeven point.

Question

Quizplus · Accepted Answer

Firm A, with high operating leverage, has higher fixed costs and a higher break-even point, but once past the break-even, its profits grow faster due to lower variable costs per unit.

Firm a Employs a High Degree of Operating Leverage; Firm