The link between the optimal size of the firm and the break-even point in neoclassical theory

Abstract

In conditions of complicated market situation and declining demand indexes of production efficiency lose their relevance as production output falls. For this situation it is suggested to consider the behavior of the company (corporation) within the break-even point model, which provides an opportunity to analyze the effect ofproduction scales on the amount ofconstantand variable costs in the assumption of declining production scale effect. Additional savings can be achieved by reducing conditionally fixed and variable costs. On the contrary, ifmarketsituation is described as favorable and there is high demand for the products, capacity utilization rates will rise. In this case, the enterprise will increase its output to maximum (to the optimal size of the firm) that is determined by the equality of marginal costs and marginal revenue per unit of output.