Question: In Peloton's new factory, they are debating between two different production methods. Production method 1 will be largely autonomous and results in fixed costs of

 In Peloton's new factory, they are debating between two different production

In Peloton's new factory, they are debating between two different production methods. Production method 1 will be largely autonomous and results in fixed costs of $3 million to lease robotic machinery, but reduces the variable cost per unit to $500. Production method 2 uses mostly human labor and results in fixed costs of $1 million but variable costs per unit are $1,000. If Peloton can sell its exercise bikes for $3,000 and intends to sell 3,000 units, the degree of operating leverage for Production method 1 is while the degree of operating leverage for Production method 2 is The relationship between the degree of operating leverage for production method 1 and method 2 follows from the fact that holding all else constant, higher fixed costs result in a degree of operating leverage. (Hint: For simplicity, assume no taxes, interest expense, or depreciation)

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