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    Profits larger or smaller if firm increased operating leverage

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    Changes in sales can cause changes in profits. Would the profit change associated with sales changes be larger or smaller if a firm increased its operating leverage? Explain your answer.

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    First, the degree of operating leverage (DOL) measures how much a $1 increase in revenue affects the company's operating income. DOL is measured by
    Contribution margin ...

    Solution Summary

    The solution examines if the profits are larger is smaller if firm increased operating leverages.