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When to Get In and Out of Dairy Farming: A Real Option Analysis

Published online by Cambridge University Press:  15 September 2016

Loren W. Tauer
Loren W. Tauer*
Affiliation:
Department of Applied Economics and Management at Cornell University, Ithaca, New York
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Abstract

The Dixit entry/exit real option model was applied to the entry/exit decisions of New York dairy farmers. For the cost structure of a 500-cow farm, the entry milk price is $17.52 per hundredweight (cwt) and the exit milk price is $10.84. For the 50-cow farm cost structure, the entry price is higher at $23.71 per cwt, and the exit price is also higher at $13.48. If infinite numbers of representative farms enter and exit at these prices, the price of milk should range between $13.48 and $17.52 per cwt.

Keywords

dairy farmingentry-exitinvestmentreal options
Type
Contributed Papers
Information
Agricultural and Resource Economics Review , Volume 35 , Issue 2 , October 2006 , pp. 339 - 347
Copyright
Copyright © 2006 Northeastern Agricultural and Resource Economics Association 

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