Suppose that there are two firms operating in a market. Suppose that the degree of operating leverage for Firm 1 is DOL= 1.5 while the degree of operating leverage for Firm 2 is DOL=2

1. How much would the profits of each firm change if both firms experienced an increase in quantity sold of 10%?
2. Suppose instead that each firm experiences a 5% decrease in quantity sold. What would happen to the profits of each firm?
3. Which firms profits are more sensitive to changes in output? Why?