If a firm has low fixed costs relative to all other firms in the same industry, a large change in volume (either up or down) would have:
A) a smaller change in EBIT for the firm versus the other firms.
B) no effect in any way on the firms as volume does not affect fixed costs.
C) a decreasing effect on the cyclical nature of the business.
D) a large change in EBIT for the firm versus the other firms.

Question

Quizplus · Accepted Answer

Firms with low fixed costs relative to variable costs are less sensitive to changes in volume, leading to smaller changes in Earnings Before Interest and Taxes (EBIT) when volume changes significantly. This is because their costs more closely align with their revenue changes.

If a Firm Has Low Fixed Costs Relative to All