Firm a Produces Semiconductors Using Highly Technical Machinery; Firm B

Multiple Choice

Firm A produces semiconductors using highly technical machinery; Firm B is a retail clothing store with little use of machinery. Consider which firm employs a higher degree of operating leverage and then answer the following question: "Which of the following comparative statements about firms A and B is true?"

A) A has a lower break-even point than B, but A's profit grows faster after the breakeven.
B) A has a higher break-even point than B, but A's profit grows slower after the breakeven.
C) B has a lower break-even point than A, but A's profit grows faster after the breakeven.
D) B has a lower break-even point than A, and profit grows at the same rate for both companies after the break-even point.