Microeconomics Case Study

Business Viability of Dish TV: Would it Break or Break-even?

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Abstract:
Meant to understand break-even point and shutdown point, this case study addresses an important business dilemma: Does it make economic sense to remain in business even when the firm is incurring losses? Of course, some would argue that these are just start up losses and no business firm can be expected to turn in profits from the first year of operations. Dish TV is the pioneer of Direct To Home (DTH) services in India. The concepts of break-even and shutdown are analysed with reference to Dish TV in the case study. The business viability depends on the cost rationalisation with a view to achieving profit maximisation. Whether incurrence of loss by a firm should necessitate its closure or it is worth the firm’s while to stay in business is probed with this case study. When a firm achieves break-even and when it does not, and what needs to be compared to decide the firm’s shutdown are some of the interesting aspects discussed in the run of the case. The case throws light on an important issue of business operation – a firm cannot escape the costs, which have already been sunk. Whether Dish TV would be a success story after achieving the break-even or there is the probability of it opting for shutdown, depends not only on the realised figures of its annual report but also on its future expectations concerning revenue and cost.

Pedagogical Objectives:

• To understand the cost structure of a firm
• To understand the concept of break-even point
• To understand the concept of shutdown point.

Keywords : Breakeven Point, Shutdown Point, BEP Analysis, Marginal Cost Analysis, Cost-Volume-Profit Analysis, CVP Analysis, Marginal Costs, Contribution per Unit, Link between production and cost, fixed costs, variable costs, cost curves, business viability, Shot-run Costs, Long-run Costs, Cost-Revenue Relationships, Total Revenue, Marginal Revenue, Cost-Benefit Analysis, Cost and Revenue Analysis for Decision Making, Managerial Economics, Microeconomics, Economics for Business, Business Economics, Economics for Managers, Paul Samuelson