Firm A produces semiconductors using highly technical machinery; Firm B is a retail clothing store. Consider which firm employs a higher degree of operating leverage and then answer the following question: "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 at the same rate for both companies after the breakeven point.

Question

Quizplus · Accepted Answer

Firm A, with its high fixed costs due to technical machinery, has a higher degree of operating leverage, leading to a higher break-even point. However, once past the break-even point, its profits grow faster compared to Firm B.

Firm a Produces Semiconductors Using Highly Technical Machinery; Firm B