In economics, the degree to which a firm or project relies on fixed costs rather than variable costs is referred to as:

• A. Financial leverage
• B. Elasticity
• C. Operating leverage
• D. Marginal cost

Answer: (C)

Verified step by step guidance

1. Understand the concept of cost structure in a firm, which includes fixed costs (costs that do not change with output) and variable costs (costs that vary with output).
2. Recognize that 'Operating leverage' measures how sensitive a firm's operating income is to changes in sales volume, which depends on the proportion of fixed costs in the total cost structure.
3. Recall that financial leverage relates to the use of debt financing, elasticity refers to responsiveness of quantity demanded or supplied to price changes, and marginal cost is the cost of producing one additional unit.
4. Identify that the term describing reliance on fixed costs rather than variable costs in production is 'Operating leverage'.
5. Conclude that the correct answer is 'Operating leverage' because it directly relates to the firm's cost structure and its impact on profitability as output changes.