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Abstract
In many analyses of profit maximization, attention
is directed to large herds and specialization in milk
production. Why then do some farmers persist in
keeping small dairy herds even when prices for
Grade B milk become quite low? This article shows
that even with relatively low prices for milk the
inclusion of the small dairy herd in the combination
of enterprises may still provide the maximum profit
from the resources available on the farm. At higher
levels of milk prices, it becomes profitable to increase
the number of cows and the consequent quantity
of milk produced. The various levels of prices
and corresponding production of milk constitute
a supply function for the farm. This paper illustrates
the supply function by utilizing the resources
found on a typical 160-acre farm in northeastern
Iowa with the full-time labor of two men and
$10,250 in capital available. With the aid of varilt
ble-price programming, optimum combinations of
nterprises for maximizing profits were computed,
starting with milk prices so low (92 cents per hundredweight
for grade B milk) that no milk cows
would be included in the organization. With the
price of milk increased to $1.01, a 13-cow herd
would maximize profits while the small poultry
enterprise would be dropped. With the price of
milk at $2.38, a 24-cow herd would be the most
profitable and the fall pig enterprise would be
dropped. Thus at each level of milk prices, the
farmer would have an optimum organization of
cows, hogs, and poultry for profit maximization.
This is Journal Paper No. J-3443 of the Iowa
Agricultural and Home Economics Experiment
Station, Ames, Iowa. Project No. 1277.