tions show the quantity of milk which would he forthcoming if: (a) all 

 farmers in the Northeast made optimal adjustments; (b) intermediate 

 run conditions prevailed; (c) a management level equivalent to the top 

 25 percent of farmers in 1960 was employed; (d) the resource hase used 

 was that of 1960 or 1965; and (e) all farmers received the same price 

 for their milk. These regional supply functions depart from the assump- 

 tions of the perfect competitive model in that transportation costs are 

 neglected. 



Regional Supply Functions with 1965 Milk Price Differentials 

 and 1960 and 1965 Resource Base 



Price differentials between areas in the Northeast reflect differences 

 in transportation costs and institutional arrangements. The 1965 milk 

 price differentials between areas were used to determine aggregate 

 supply functions (Figure 4) . The average 1965 milk price in the North- 

 east was $4.84. The nearest programmed price, S4.80, was selected as the 

 base price. Prices in Areas 8, 12, 16, and 17 approximated this average 

 price. Supply schedules were adjusted such that prices in all other 

 regions would reflect the 1965 price differences. The base price used for 

 each of the 20 areas and the differential from the S4.80 base price is 

 shown in Table 9 and Figure 4. Then simple summation over quantities 

 so arrayed yield the regional supply function. The resulting supply 

 functions are described in Table 10. 



These regional supply functions, constructed with area price differ- 

 entials, have all the implicit and explicit assumptions associated with 

 length of run of model, normative optimizing principles, and high 

 level management associated with the procedures of this study. The 

 advantage of these functions is that they reflect price advantage of one 

 area over another. However, they are not supply functions in the com- 

 petitive sense because they incorporate existing institutional arrange- 

 ments, i.e. milk market orders. 



Point Elasticities of Supply with 1960 

 Resource Base and 1965 Area Prices 



Considerable interest is always expressed in comparing the rela- 

 tive responsiveness of milk output to price change. To do this, elasti- 

 cities of supply for each area were estimated. First, a simple linear re- 

 gression equation was fitted to the observed points along the step supply 

 functions. The slope of the regression equation for each area was 

 multiplied l)y each area price and the result divided by the quantity of 

 milk estimated to be produced at that price. These estimates of supply 

 elasticities for the 20 areas arc shown in Table 11. 



Among the 20 areas those with more production alternatives for 

 dairy — such as hogs and beef in Southeastern Permsylvania, Mary- 

 land, and Delaware and crop production in Western New York State — 

 elasticities were greater than for areas where there were few livestock 

 or crop alternatives. Examples of areas with few alternatives include: 

 Area 2, Southeastern New Hampshire and Southwestern Maine: Area 



28 



