Final answer:
Reducing fixed costs may increase operating income, though not necessarily by the same amount due to various factors impacting profits and operations.
Step-by-step explanation:
The assertion that if a company reduces its fixed costs, the operating income will increase by the exact amount of the cost reduction may not necessarily be true. Fixed costs, such as rent or salaries, are expenses that do not change with the level of output. When these fixed costs are reduced, the savings contribute to the increase in operating income, but the corresponding increase in income might not be equivalent due to potential fluctuations in other factors affecting operating income, such as variable costs or sales volumes.
In practice, the reduction in fixed costs could lead to an enhanced ability to supply more services or sell more products at a given price, as demonstrated by the example of a messenger company that finds its main cost is gasoline. If gasoline prices fall, the company's service delivery becomes more economical, potentially leading to an expansion in its service area and an uptick in supply. This indicates that, while there is a link between reduced costs and rising profits, the relationship is not always a direct one-to-one equivalence due to the dynamic nature of business operations.