ATech has fixed costs of $7 million and profits of $5 million. Its competitor, ZTech, is roughly the same size and this year earned the same profits, $5 million. But it operates with higher fixed costs of $6 million and lower variable costs.

a. What is the degree of operating leverage (DOL) for each company? (Defined here as 1 + Fixed costs/Profit.) (Do not round intermediate calculations. Round your answers to 2 decimal places.)

b. Which firm has higher operating leverage?

• ZTech

• ATech

c. Which firm will likely have higher profits if the economy strengthens?

• ZTech

• ATech