Firm A and Firm B are competitors in the same industry. The two firms have similar...
Firm A and Firm B are competitors in the same industry. The two firms have similar operating costs, except Firm A has more fixed operating costs than Firm B. As a result, which firm would experience a greater change in operating income as the result of a particular change in sales? Why? Explain why thoroughly.
Homework Answers
Firm A will experience a greater change in operating income as compared to Firm B. This is due to the fact that the Degree of operating leverage of Firm A will be higher, which is explained below.
Degree of operating leverge: Total contribution/ Net income
Now, Both the firms with same net income, but Firm A is having more contribution margin as compared to Firm B due to low variable cost will be having more Degree of operating leverage.
The degree of Operating leverage suggests the number of times the net income changes with the change in sales.
Thus, Firm A with higher degree of operating leverage is having higher change in operating income as compared to change in sales.
Add Answer to:
Firm A and Firm B are competitors in the same industry. The two
firms have similar...
Consider two firms, X and Y in the same industry who use the same production technology....
Consider two firms, X and Y in the same industry who use the same production technology. To produce the same level of output, say 1000 pairs of bars, X uses more capital than Y and Y uses more labor than X. Suppose both companies pay the same wage to their employees: w = 15: (Unless otherwise stated, assume that all firms choose their input levels optimally) (a) Which company is paying a lower rent? Why? & Which company has a...
There are two potential firms in an industry with demand P=130-Q. Both firms have a constant...
There are two potential firms in an industry with demand P=130-Q. Both firms have a constant marginal cost of production equal to $40. The fixed cost to both firms is $1300. How many firms will be in the market, and what is the industry level of output, and what is the profit for each firm? Would an incumbent firm that faces the possibility of entry from one firm prefer the above situation or would it prefer that both firms have...
The following table contains selected operating data for 2 competing firms in the same industry. Matasia...
The following table contains selected operating data for 2 competing firms in the same industry. Matasia Company Ltd (Kshs) Corner Baridi Company Ltd (Kshs) Sales 25,000,000 30,000,000 Fixed Costs Variable Costs 8,000,000 15,000,000 40% of Sales 30% of Sales Required For both companies determine the Degree of Operating Leverage (4 marks) Which company has a greater amount of business risk and why? (2 mark
Companies A and B are in the same industry and are identical except for cost structure....
Companies A and B are in the same industry and are identical except for cost structure. At a volume of 50,000 units, the companies have equal net incomes. At 60,000 units, Company A's net income would be substantially higher than B's. Based on this information, Multiple Choice Company B's cost structure has higher fixed costs than A's. Company A's cost structure has more variable costs than B's. At a volume of 50,000 units, Company A's magnitude of operating leverage was...
1. Consider two firms, Stinky and Foul in the same industry who use the same production...
1. Consider two firms, Stinky and Foul in the same industry who use the same production technology. To produce the same level of output, say 1000 pairs of socks, Stinky uses more capital than Foul and Foul uses more labor than Stinky. Suppose both companies pay the same wage to their employees: w = 15. (Unless otherwise stated, assume that all firms choose their input levels optimally) (a) (2 points) Which company is paying a lower rent? Why? (b) (1.5...
3. (3 pt) Two companies (A and B) in the same industry that sell the same...
3. (3 pt) Two companies (A and B) in the same industry that sell the same product. Neither has debt in their capital structure (i.e. both companies are 100% funded by equity). Company A has a greater percentage of fixed costs in its cost structure than Company B. Which company should have a higher asset beta? Why? Briefly explain your reasoning.
Industry A has four firms. The largest firm in Industry A has more than 90 percent...
Industry A has four firms. The largest firm in Industry A has more than 90 percent of the market share. Industry B also has four firms, but each of those four firms in Industry B has 25 percent of the market share. The Herfindahl-Hirschman index will be A. larger for Industry B than Industry A, but the four-firm concentration will be the same. В. tte same for both industries, but the four-firm concentration will be larger for industry Y than Industry A C....
two firms in the same industry sell their product at 20$ per unit but one firm...
two firms in the same industry sell their product at 20$ per unit but one firm has tfc=200$ and avc=12$ while the other has tfc=600$ and avc's=6.66$ a. determine the breakeven output of each firm. why is the breakeven output of the second firm larger than that of the first firm ? b. find the degree of the contribution margin for each firm at profit= 1200 for the first firm and at profit =1400 for the second firm
The following income statements are provided for two companies operating in the same industry: Revenue Variable...
The following income statements are provided for two companies operating in the same industry: Revenue Variable costs Contribution margin Fixed costs Net income Felix Company $210,000 (37,800) 172,200 (80,934) $ 91,266 Jinx Company $210,000 (80,934) 129,066 (37,800) $ 91,266 Assuming sales increase by $1,050, select the correct statement from the following: Multiple Choice Felix's net income will be more than Jinx's Only Fell wil experience an increase in profit Felly's net income will increase by $250. Multiple Choice Felix's net...
6. Suppose all firms in a given industry have the same supply curve given by S(p)...
6. Suppose all firms in a given industry have the same supply curve given by S(p) p/2. There is free entry into the industry (a) Plot and label the four industry supply curves generated by these firms if there are 1, 2, 3, or 4 firms operating in the industry (b) If all of the firms had a cost structure such that if the price was below $3, they would be losing money, what would be the equilibrium price and...
Companies A and B are in the same industry and are identical except for cost structure. At a volume of 50,000 units, the companies have equal net incomes. At 60,000 units, Company A's net income would be substantially higher than B's. Based on this information, Multiple Choice Company B's cost structure has higher fixed costs than A's. Company A's cost structure has more variable costs than B's. At a volume of 50,000 units, Company A's magnitude of operating leverage was...
1. Consider two firms, Stinky and Foul in the same industry who use the same production technology. To produce the same level of output, say 1000 pairs of socks, Stinky uses more capital than Foul and Foul uses more labor than Stinky. Suppose both companies pay the same wage to their employees: w = 15. (Unless otherwise stated, assume that all firms choose their input levels optimally) (a) (2 points) Which company is paying a lower rent? Why? (b) (1.5...
3. (3 pt) Two companies (A and B) in the same industry that sell the same product. Neither has debt in their capital structure (i.e. both companies are 100% funded by equity). Company A has a greater percentage of fixed costs in its cost structure than Company B. Which company should have a higher asset beta? Why? Briefly explain your reasoning.
Industry A has four firms. The largest firm in Industry A has more than 90 percent of the market share. Industry B also has four firms, but each of those four firms in Industry B has 25 percent of the market share. The Herfindahl-Hirschman index will be A. larger for Industry B than Industry A, but the four-firm concentration will be the same. В. tte same for both industries, but the four-firm concentration will be larger for industry Y than Industry A C....
The following income statements are provided for two companies operating in the same industry: Revenue Variable costs Contribution margin Fixed costs Net income Felix Company $210,000 (37,800) 172,200 (80,934) $ 91,266 Jinx Company $210,000 (80,934) 129,066 (37,800) $ 91,266 Assuming sales increase by $1,050, select the correct statement from the following: Multiple Choice Felix's net income will be more than Jinx's Only Fell wil experience an increase in profit Felly's net income will increase by $250. Multiple Choice Felix's net...
6. Suppose all firms in a given industry have the same supply curve given by S(p) p/2. There is free entry into the industry (a) Plot and label the four industry supply curves generated by these firms if there are 1, 2, 3, or 4 firms operating in the industry (b) If all of the firms had a cost structure such that if the price was below $3, they would be losing money, what would be the equilibrium price and...
Most questions answered within 3 hours.
-
How much must I invest today if I want to withdraw 1/3 of my
original investment...
asked 1 hour ago -
What is meant by a “term premium”?
What can explain such a premium? Is it a...
asked 2 hours ago -
23. Which molecule has only covalent bonds? A. CO2 B. Al2O3 C.
Mg3N2
24. The octet...
asked 3 hours ago -
the
total pressure for a mixture of N2O4 and NO2 is 2.20 atm. If Kp=
7.10...
asked 3 hours ago -
Delaware Corp. prepared a master budget that included $22,385
for direct materials, $28,600 for direct labor,...
asked 3 hours ago -
For pesticide HCB (hexachlorobenzene), its logarithmic partition
coefficient log Kow is 5.6. What would be the...
asked 3 hours ago -
A chemist requires 0.422 mil Na2CO3 for a reaction. How many
grams does this correspond to?
asked 3 hours ago -
If the vapor pressure of carvone is approximately 9.4 torr at 99
°C, approximately how much...
asked 3 hours ago -
A juice bottling company is carrying out a test at 10%
significance that the mean population...
asked 3 hours ago -
What is the reflectivity (in percent) needed to keep water at a
temperature near its freezing...
asked 3 hours ago -
Suppose that the average surface temperature of Earth is 300K.
Assume this is uniform over its...
asked 3 hours ago -
Draw the condensed structural formula for alkenes and alkynes or
the line-angle structural formula for cycloalkenes...
asked 3 hours ago