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Consider the following: In all respects, Company A and Company B are identical except that Company...

Consider the following: In all respects, Company A and Company B are identical except that Company A’s costs are mostly variable, whereas Company B’s costs are mostly fixed. When sales increase, which company will tend to realize the greatest increase in profits? Explain.

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A company's variable cost varies with the production or sale. Whereas fixed cost does not vary with the production or sale. Fixed cost remain same even if there is no production or sale. If sales increases, Company A's variable costs also increases resulting in slight increase in profit. But in case of Company B, Fixed costs remain same and the company can subject to greatest increase in profits.

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