b. Profits decrease at a proportionally higher rate

Here's why:

Operating leverage refers to the percentage of fixed costs in a company's cost structure. A company with high operating leverage has a large proportion of fixed costs, such as rent, salaries, and equipment leases, which do not change with the level of output.

When sales decrease, the company still has to cover these fixed costs. If the company cannot reduce these costs in line with the decrease in sales, it will have less revenue to cover these costs, leading to a decrease in profits.

Because of the high operating leverage, this decrease in profits will be proportionally higher than the decrease in sales. This is because each unit of sales lost has a larger impact on profits due to the high fixed costs that still need

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b. Profits decrease at a proportionally higher rate

Here's why:

Operating leverage refers to the percentage of fixed costs in a company's cost structure. A company with high operating leverage has a large proportion of fixed costs, such as rent, salaries, and equipment leases, which do not change with the level of output.

When sales decrease, the company still has to cover these fixed costs. If the company cannot reduce these costs in line with the decrease in sales, it will have less revenue to cover these costs, leading to a decrease in profits.

Because of the high operating leverage, this decrease in profits will be proportionally higher than the decrease in sales. This is because each unit of sales lost has a larger impact on profits due to the high fixed costs that still need

Knowee AI · Accepted Answer

b. Profits decrease at a proportionally higher rate

Here's why:

Operating leverage refers to the percentage of fixed costs in a company's cost structure. A company with high operating leverage has a large proportion of fixed costs, such as rent, salaries, and equipment leases, which do not change with the level of output.

When sales decrease, the company still has to cover these fixed costs. If the company cannot reduce these costs in line with the decrease in sales, it will have less revenue to cover these costs, leading to a decrease in profits.

Because of the high operating leverage, this decrease in profits will be proportionally higher than the decrease in sales. This is because each unit of sales lost has a larger impact on profits due to the high fixed costs that still need

How does a decrease in sales affect a company with high operating leverage?a.It does not affect profitsb.Profits decrease at a proportionally higher ratec.The impact on profits is minimald.Profits decrease at a proportionally lower rate

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