Holding all other factors constant, a firm that is subject to a greater level of business risk should employ less operating leverage than an otherwise equivalent firm that is subject to a lesser level of business risk.

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Quizplus · Accepted Answer

This is because a firm with greater business risk is more likely to experience fluctuations in sales and profits, and a higher level of operating leverage would amplify these fluctuations, leading to greater financial risk. By employing less operating leverage, the firm can reduce the impact of these fluctuations on its financial performance.

Holding All Other Factors Constant, a Firm That Is Subject