All else the same, if a ﬁrm revises its production process to use more labour and less machinery, the
ﬁrm will have an increased degree of operating leverage.

Question

Quizplus · Accepted Answer

Operating leverage is determined by the proportion of fixed costs to variable costs. Using more labor (a variable cost) and less machinery (a fixed cost) would decrease the degree of operating leverage, as it reduces the proportion of fixed costs.

All Else the Same, If a ﬁRm Revises Its Production