Chapter 12, Problem 12PS

ATech has fixed costs of $\$\text{7}$ million and profits of $\$\text{4}$ million. Its competitor, ZTech, is roughly the same size and this year earned the same profits, $\$\text{4}$ million. But it operates with higher fixed costs of $\$\text{8}$ million and lower variable costs. $\left(\text{LO 12}-\text{3}\right)$
a. Which firm has higher operating leverage?
b. Which firm will likely have higher profits if the economy strengthens?