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 effect 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

When a firm has low fixed costs relative to other firms in the industry, a large change in volume (either up or down) will have a smaller proportional effect on the firm's EBIT compared to other firms with higher fixed costs. This is because the firm with low fixed costs has a higher proportion of variable costs, which will change proportionally with changes in output or sales. Therefore, the answer is A.

If a Firm Has Low Fixed Costs Relative to All