Profit-maximizing plans and static supply schedules for fluid milk in the Des Moines milkshed
Iowa Agriculture and Home Economics Experiment Station Research Bulletin: Volume 33, Issue 486
The objectives of the study reported here were (1) to develop profit-maximizing production plans for dairy farms in the Des Moines area and (2) to derive aggregate fluid milk supply schedules for the area based on these optimum plans. The dairy farms in the area were classified into 24 categories on the basis of acreage, soil type. tenure and dairy-building resources. Optimum plans were developed for an average farm in each category at two levels of production per cow. Plans were developed for the short run and for two long-run planning periods. In plans for the short-run situation, buildings and the supply of operating capital are considered fixed at about current levels. In the long-run plans, buildings are considered variable, and operating capital is limited only by the requirement that it earn at least 5 percent return on investments. Special long-run plans also were developed with allowance for advancement in production techniques.
These plans were developed using linear programming techniques utilizing a variable price for fluid milk. In addition to the usual on-farm enterprises, two off-farm alternatives are included. All labor may be hired out at $0.50 per hour, and capital may be loaned at 5 percent interest. The presence of these alternatives makes it requisite that on-farm .enterprises bring at least these minimum returns, or the resources will not be used on the farm.