When to Get In and Out of Dairy Farming: A Real Option Analysis
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The Dixit entry/exit real option model, modified to accommodate a milk price support
regime, was applied to the entry/exit decisions of New York dairy farmers. Results varied
by farm size, but for the 500-cow farm the entry milk price is $19.09 and the exit milk
price is $11.66 when farmers were allowed to continuously enter and exit the industry.
With no option to ever return to dairy farming, the exit milk price falls to $10.00.