Suppose a company decided to automate a production line. Explain what effects this would have on a ...

An automated production line would increase fixed costs through extra amortization on the new machinery and also decrease variable costs due to the elimination of direct labour as a result of automation. This would increase the break-even point. This could possibly have a negative effect on the firm if demand for the product produced by this production line is expected to decline in the future. With high fixed costs and low demand, a decline in profits might be more severe due to the presence of unchanging fixed costs as volume.