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The cost of milk production by farm size was decomposed into frontier andefficiency components with a stochastic cost curve using data on 755 USA dairy farmsfrom the year 2000. The estimated frontier function is much flatter than the compositecost curve, and although the frontier cost of production decreases with farm size, that costreduction is not as pronounced as a cost curve that includes inefficiency. The higher costof production of many smaller farms is caused by inefficiency. The 50-cow farm has afrontier cost of production of $10.05 and an inefficiency cost of $10.27 for a compositecost of $20.32. In contrast, the 1,000-cow herd has a frontier cost of production of $9.27and an inefficiency cost of $2.82 for a composite cost of $12.09. The implication is thatthe efficient 50-cow farm is competitive with the average 1,000-cow farm, but not withthe efficient 1,000-cow farm.

Subject(s): Farm Management

Livestock Production/Industries

Issue Date: 2003-09

Publication Type: Working or Discussion Paper

PURL Identifier:

Total Pages: 23

Series Statement: WP 2003-28

Record appears in: Cornell University > Department of Applied Economics and Management > Working Papers

Autor: Tauer, Loren W. ; Mishra, Ashok K.


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