1. You have a bakery with an industrial oven with a fixed cost of $1,000. With this oven, you can produce 500 loaves of bread per month. Your bakery is growing fast and you think you may trade in your current oven and buy an even larger industrial sized oven for about $5,000. Your friend says to be careful because buying that larger oven will increase your operating leverage, and therefore your risk. 
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3. What does that mean and is she correct?
4. Can you do anything about this so that you don’t increase your risk?

Answer rating: 100% (QA)

Your friend is correct in pointing out the concept of operating leverage and its potential impact on risk Operating leverage refers to the degree to w... View the full answer