XYZ Ltd$.$ invested in new equipment and labour last year to give it extra capacity as it pursued new sales.

Last year it was operating at around $65\%$ of total capacity. Late last year, the business won a major new contract, meaning it will now be operating at nearly $80\%$ of capacity. XYZ did not have to make pricing concessions to win this deal,

and the contract can be fulfilled at existing staff levels. What is likely to happen to XYZ$$s gross margin next year?

Answers :

It will likely fall.

It will likely increase.

It will likely remain stable.