We would never breed teacup-sized or Merle dogs. The Chihuahua standard is from 2 pounds to 6 pounds when full grown. The small Chihuahuas (under 3lbs) are at a greater risk of having health defects due to their size. Also, small Chihuahuas are at a much higher risk of hypoglycemia and dental problems. They are also fragile, and can be hurt much more easily. The small Chihuahua itself might appear healthy as a pup, but might have problems later on, and possibly a shorter lifespan.
Merle Chihuahuas and their puppies cannot be registered as purebred with the Canadian Kennel Club, without any exceptions. The Merle gene does not occur in Chihuahuas, and is the result of breeding Chihuahuas with another breed of dog.
There are also many health risks to breeding Merle dogs. The merle gene acts on a color and lightens and whitens certain parts of it. The whitening is what causes defects. Often, when a dog's coat is whitened, the pigment inside of their ear and on their eye, also whitens...making the dog deaf and blind as the nerves endings atrophy and die. Unfortunately backyard breeders tend to ignore this fact to produce more, just to sell as a Designer dog.