1. Demerits of Break-even
analysis
Demerits are as such:
In breakeven analysis- it is assumed that the
selling price and the variable costs per unit
are known for each level of production.
However in practice these are not known.
It does not permit a proper evaluation of cash
flows.
Break even analysis assumes that the firm’s
project exists in isolation.

2. Shutdown Point
• If the firm can not
cover its variable
costs (i.e AVC<P) in
the short run, then the
firm has to shut down.
MC
ATC
AVC
SHUT
DOW
N
POIN
T

3. Real economies of scale
• These are :-
• Production
• Selling
• Managerial
• Storage and transport

4. Production economies
• It can be further classified in to labour,
technical and inventory.
• Labour economies can be achieved by
increasing the scale of output mainly due
to division of labour by
• A. specialization of labour
• B. time saving
• Automation of production processes
• volume economics

5. Technical Economies
• These economies are associated withfixed
capital investments which include all
machinery and other equipment. They
result from the use of specialized
equipment and labour and modern
techniques of production . Mechanized
methods of production have high average
fixed costs at low levels of output. Once
the appropriate scale is reached , these
production techniques become profitable

6. Technical economies
• Technical economies may also arise due
to reserve capacities to avoid disruption
of production due to machine breakdown.

7. Inventory economies
• Inventory economies are maintained to
meet the random fluctuations in both the
output (finished products) and input (raw
materials) of the firm