DQ1, part 1) When fixed costs are higher and variable costs are lower, a) does the breakeven revenues go up or down? b) does the degree of operating leverage (DOL) go up or down? c) does projected profit for years 2 through 5 increase or decrease? DQ1, part 2) When fixed costs are lower and variable costs are higher, a) does the breakeven revenues go up or down? b) does the degree of operating leverage (DOL) go up or down? c) does projected profit for years 2 through 5 increase or decrease? DQ1, part 3) In what scenarios with your company would you want to change your fixed costs to be higher and your variable costs to be lower - -OR visa versa? Leasing vs. buying is a direct relationship with variable vs. fixed costs which can effect long term profits as well as breakeven. Just how large the profit will be is also based on the level of fixed and variable costs. For example, scenario 1) if your fixed costs are large and variable costs are low, then you will have an even larger increase in profits -- highly leveraged. On the other hand, scenario 2) if your variable costs are high, and your fixed costs are low, (given that total costs did not change from scenario 1, then you are not as highly leveraged and your profit over time will not increase as greatly as it did in scenario 1. You then might ask the question, why not always have high fixed costs. The downside is, when fixed costs are high and variable costs low, your breakeven is high -- which means if your sales decrease, you will go bankrupt quickly. However, if your variable costs are high and fixed costs are low, your breakeven is low as well -- meaning that in bad sales times, you can survive longer!