Q

Q(P - AVC) - TFC AQ After simplifying, the degree of operating leverage formula at any given level of output is5

This calculation arbitrarily assumes that AQ = 2,000. If AQ = 1,000 or AQ = 4,000, the degree of operating leverage still equals 2, because these calculations are based on linear cost and revenue curves. However, if a base other than 100,000 units is chosen, the degree of operating leverage will vary.

Because TFC = Q(AFC) and AC = AVC + AFC, where AFC is average fixed cost, Equation 8.8 can be reduced further to a form that is useful in some situations:

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