Case of the Day: Dairy Farming from the Input Side
This case builds on the earlier Dairy Farms case. Refer to that case or the Excel link below for the numbers.
We now consider the profit-maximizing choice of the variable input (purchased feed) for the dairy farm in the earlier example. Recall that we derived the marginal product of feed in the earlier case.
- Suppose that the price of milk is $0.30 per pound. Calculate the marginal revenue product of feed for each level of feed input given in Table 1 and show the MRP curve.
- What would be the profit-maximizing level of feed input at an input price of $0.24 per pound? Using the previous case, what would be the output of milk at that level of input? How does this result compare with the profit-maximizating output calculated using the marginal cost curve in the earlier case study?
- Now re-do the above two problems assuming that the output (milk) price falls to $0.24 per pound.