This paper focuses on the study of gamma-type Stirling engine prototype using a combined Schmidt closed-form and mechanical loss analysis. Not restricted to optimizing the indicated power as classic Schmidt theory is set to, this analysis allows to maximize the shaft power due to the mechanical loss in power transmission. For this purpose, MATLAB code was developed to calculate the indicated and the shaft powers of the engine at different operating parameters. The results showed that shaft power peaks at swept volume ratios smaller than those of indicated power at different values of mechanism effectiveness. Within the range of engine mechanism effectiveness typically between 0.7 and 0.9, it was found that maximum shaft power for this particular engine can be achieved at different optimum values of swept volume ratio between 0.75 and 0.95 and phase angle between 80° and 90°. However, an optimum swept volume ratio was found to be <i>k</i>=0.55 of the same engine size for different scenarios of operation. Also, the developed model can be used as a design tool in the preliminary stage to find the optimum geometry of the engine. The new engine design parameters including the stroke, the crank radius and power piston bore, and engine alteration were presented.