Atech has fixed costs of $7 million and profits of $4 million. Its competitor, ZTech, is roughly the same size and this year earned the same profits, $4 million. However, ZTech operates with fixed costs of only $5 million but higher variable costs.

a. Which firm has higher operating leverage?

b. Which firm would you expect to have profits that are more sensitive to the state of the economy?

c. Which firm would you expect to have the higher stock market beta? P-968