Optimum Levels of Milk Production under Marketing Quotas

The purpose of this paper is to provide an analytical framework for dairymen to utilize to determine profit maximizing levels of milk production. Included is a consideration of expansion through surplus production as opposed to base purchase by increased herd size or production per cow. It is argued that instead of equating marginal cost with the price of surplus milk and buying additional base if initial cost can be recovered in a reasonable length of time, dairymen should consider: the effect that length of “write‐off” has on marginal cost of production, and the adjustment of marginal revenue from surplus production to reflect the discounted present value of additional base.