Discussion
Operating leverage is high when a firm's cost structure has a large proportion of
Answer: C
Correct answer: fixed cost
Operating leverage measures how strongly profit responds to a change in volume, and it is high when fixed costs are large relative to variable. A capital-intensive firm has a high contribution margin but a heavy fixed burden, so once past break-even each additional unit adds a great deal of profit - and each unit lost takes away just as much.
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