When a firm increases its degree of operating leverage by substituting fixed costs for variable costs,it normally does so to decrease its breakeven point and to increase its profit.

Question

Quizplus · Accepted Answer

Increasing the degree of operating leverage by substitifying fixed costs for variable costs typically increases a firm's breakeven point because more revenue is needed to cover higher fixed costs before profit is realized. However, it can increase profits beyond the breakeven point due to lower variable costs per unit.

When a Firm Increases Its Degree of Operating Leverage by Substituting