If the economy is shrinking, firms with low operating leverage will experience
A)higher decreases in profits than firms with high operating leverage.
B)similar decreases in profits as firms with high operating leverage.
C)smaller decreases in profits than firms with high operating leverage.
D)no change in profits.

Question

Quizplus · Accepted Answer

As sales decrease, firms with high operating leverage spread these fixed costs over fewer units and thus decrease profits.

If the Economy Is Shrinking, Firms with Low Operating Leverage