Negative Milk Supply Response Under Constrained Profit Maximizing Behavior

Author:

Tauer Loren W.,Kaiser Harry M.

Abstract

A conceptual model is formulated that shows that a downward sloping supply function may exist for a profit maximizing firm facing a cash-flow constraint. The necessary requirement is that at least one factor must be a non-cash input. The model is tested using analysis of variance on two groups of producers from farm record data, one group facing a binding budget constraint the other group not. The results indicate that farms facing a cash flow constraint increase output more than farms not restricted by a cash flow constraint in response to a price decrease.

Publisher

Cambridge University Press (CUP)

Subject

General Medicine

Reference18 articles.

1. Chang Ching-Cheng , and Stefanou Spiro E. “The Dynamic Response of Dairy Producers to Lower Price Under Asymmetric Adjustment.” Agricultural Economics and Rural Sociology Staff Paper No. 149, The Pennsylvania State University, February 1988.

2. The 1986 business summary did not indicate whether participants were accepted into the Dairy Termination Program (DTP), another supply control program initiated in 1986. However, it is highly unlikely that farmers accepted into this program would have participated in the 1986 summary program. A 1986 analysis of their dairy business would not have been particularly useful since the DTP required exit from dairying for five years.

3. Does the Law of Supply Hold Under Uncertainty?

4. Investment in U.S. Agriculture

5. Hoard's Dairyman, “Editorial Comment.” April 10, 1986.

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