Question

Suppose you are a manager of a dairy farm. You are currently milking 100 cows and each cow produces 22,000 pounds (220 cwt) of milk per year. To produce this quantity of milk, the farm milks the each cow twice a day (once in the morning and once in the afternoon). Now suppose milk prices are increasing. Over the past few months the price of milk has increased and milk is now selling for $15/cwt. The increase in milk price has got you thinking – should I increase my milking times from twice a day to three times a day (adding another milking time in the evening). If you do increase milking times to three times a day, your VT dairy extension specialist estimates your milk production per cow will increase to 26,000 pounds of milk per year (260 cwt per cow per year). Of course you will need more labor to get this extra milk. Each milking requires 2 people to work 5 hours each. You must pay each worker $10.00/hr during the week and time and a half during the weekends ($15.00/hour). You will need to feed your cows some extra feed since they will be producing more milk. The extension specialist estimates you will need to feed each cow an additional 4 pounds of soybean corn meal mix per cow per day in the milking parlor. Soybean/corn feed sells for $250/ton at the local coop. Operating the milking equipment and parlor an additional 5 hours/day will also cost you an additional $1,000 in electricity per year. Finally, since your cows will be working harder and will be stressed more, you also expect you vet bills go up about $5,000 per year.

Using the answers above, the marginal cost of producing the additional milk from the third milking is:

$12.34 per cwt

$16.46 per cwt

$21.45 per cwt

$132.93 per cwt

Question 24

Suppose you are a manager of a dairy farm. You are currently milking 100 cows and each cow produces 22,000 pounds (220 cwt) of milk per year. To produce this quantity of milk, the farm milks the each cow twice a day (once in the morning and once in the afternoon). Now suppose milk prices are increasing. Over the past few months the price of milk has increased and milk is now selling for $15/cwt. The increase in milk price has got you thinking – should I increase my milking times from twice a day to three times a day (adding another milking time in the evening). If you do increase milking times to three times a day, your VT dairy extension specialist estimates your milk production per cow will increase to 26,000 pounds of milk per year (260 cwt per cow per year). Of course you will need more labor to get this extra milk. Each milking requires 2 people to work 5 hours each. You must pay each worker $10.00/hr during the week and time and a half during the weekends ($15.00/hour). You will need to feed your cows some extra feed since they will be producing more milk. The extension specialist estimates you will need to feed each cow an additional 4 pounds of soybean corn meal mix per cow per day in the milking parlor. Soybean/corn feed sells for $250/ton at the local coop. Operating the milking equipment and parlor an additional 5 hours/day will also cost you an additional $1,000 in electricity per year. Finally, since your cows will be working harder and will be stressed more, you also expect you vet bills go up about $5,000 per year.

Should the farm add the third milking?

Yes

No

Question 25

Which of the following statements is true?
A) For a perfectly competitive firm, average fixed cost is constant at all levels of output.
B) In the short run, at least one input is fixed.
C) If marginal product is positive but decreasing, marginal cost will be declining.

Statement A is true

Statement B is true

Statement C is true

Statements A and B are both true

Statements B and C are both true

Statements A and C are both true

All of the above are true

Answer 1

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