How can we compute operating leverage
How can we compute operating leverage?
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Operating leverage is highest in companies that got fixed operating cost for variable operating cost. It tells investor about the company’s situation and the risk profile of the company. It is evaluated when a company has fixed costs that are apart from the sales volume. When company has fixed cost then the percentage change in profits due to changes in sales volume is larger than the percentage change in sales. The calculation of this is named as degree of operating leverage (or DOL) that gives the extent to that operating profits change as sales volume changes. DOL (or Degree of operating leverage) = percentage change in income / percentage change in sale.
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Question: Suppose three identical firms are engaged in Cournot competition in quantities. They all have marginal costs equal to 40. Market demand is given by: Discover Q & A Leading Solution Library Avail More Than 1460493 Solved problems, classrooms assignments, textbook's solutions, for quick Downloads No hassle, Instant Access Start Discovering 18,76,764 1923268 Asked 3,689 Active Tutors 1460493 Questions Answered Start Excelling in your courses, Ask an Expert and get answers for your homework and assignments!! Submit Assignment
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