The impact of variation in production traits, and inputs costs and product prices on economic efficiency of a multi-purpose sheep breed farmed in a marginal area of Slovakia was examined using a bio-economic simulation model of the program package ECOWEIGHT. Variations in the proportion of milk processed to cheese on farms, sheep product prices and production costs were based on values observed in Slovakia from 2004 to 2010, and variation in ewe performance traits (milk yield, conception rate, litter size, ewe productive lifetime) was based upon breed standards for the Improved Valachian breed. Revenue from government subsidies was not included in farm returns. Profitability ratios of farms were negative for most combinations of production and economic factors (–6 to –37%). Only farms processing milk to cheese, farms with the highest simulated milk yield (180 kg per ewe) and farms receiving the highest simulated milk and cheese prices (0.99 and 8.36 eur/ kg) achieved positive profitability’s of 11, 21 and 3%, respectively. Farms reaching the performance level of animals characterised by the breed standard had 9% higher revenue, 3% lower cost and 11 percentage points higher profitability ratio (–6%) than farms with average animal performance, when compared at the same average level of all product prices and costs. To promote economic ustainability of multi-purpose sheep breed enterprises in marginal areas, selection and management to achieve the biological potential of those breeds and increasing the proportion of milk processed to cheese on farms are recommended.