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

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  • Tauer, Loren W.

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.

Suggested Citation

  • Tauer, Loren W., 2006. "When to Get In and Out of Dairy Farming: A Real Option Analysis," Agricultural and Resource Economics Review, Northeastern Agricultural and Resource Economics Association, vol. 35(2), pages 1-9, October.
  • Handle: RePEc:ags:arerjl:10219
    DOI: 10.22004/ag.econ.10219
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    References listed on IDEAS

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