Operating leverage measures the relative use of fixed costs versus variable cost

Question

Operating leverage measures the relative use of fixed costs versus variable costs, with a higher operating leverage indicating higher fixed costs. Which of the following statements is/are true for a firm with a high operating leverage (relative to a lower operating leverage)?
a. firm will experience relatively larger profits during good times
b. firm will experience relatively smaller profits during good times
c. firm will experience relatively larger losses during bad times
d. firm will experience relatively smaller losses during bad times
e. none of the above
f. both b and d
g. both a and c

Explanation / Answer

g

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