You are provided with the following information: Firm X and Firm Y both sell the same products at the same price; both firms are the same size with identical sales levels; Firm X has lower fixed costs and higher variable operating costs than Firm Y. Which firm has the greatest variability in its operating profits?

Question

Quizplus · Accepted Answer

Firm Y has greater variability in its operating profits because it has higher fixed costs and lower variable costs. This means that changes in sales volume will have a more significant impact on its profits, as its high fixed costs remain constant regardless of sales volume, leading to greater profit variability with changes in sales.

You Are Provided with the Following Information: Firm X and Firm