Suppose a Firm Increases Its Sales Using Existing Fixed Assets

Suppose a firm increases its sales using existing fixed assets. Everything else equal, what effect will the increase in sales have on the firm's degree of operating leverage (DOL) ?

A) The DOL should increase.
B) The DOL should decrease.
C) The DOL should not change, because the amount of fixed asset does not change.
D) The DOL should increase if fixed operating costs represent a significant proportion of total operating costs; otherwise, the DOL should decrease.
E) Because the fixed operating costs are not know, the impact on DOL cannot be determined.

Correct Answer:

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