The intent of this study is to develop a model which represents the supply and demand relationships for fluid milk in the United States in order to forecast farm prices and the level of milk production for 1975 and to make projections to 1985 of the domestic consumption of fluid milk. The concept of a polynomial lag formulation of milk production is combined with the use of gross margins in an attempt to more adequately reflect the impact of biological factors and other apriori information on production response to price changes. A literature review traces the work of other authors pertinent to the development of a methodology for this study, including some of the theoretical drawbacks to the use of polynomial lags. A section on methodology relates a brief description of the dairy industry to the choice of variables used to specify the demand and supply equations and the use of a polynomial (distributive) lag model fitted to time series data for the years 1953 to 1974. The results of the study and an interpretation of these results concludes the paper.


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