If the economy is shrinking, firms with high operating leverage will experience
A)higher decreases in profits than firms with low operating leverage.
B)similar decreases in profits as firms with low operating leverage.
C)smaller decreases in profits than firms with low 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 High Operating Leverage