Ogden Dairy OD is one of many milk producers in the United S

Ogden Dairy (OD) is one of many milk producers in the United States operating in the competitive market. As its vice president of operations, you are responsible for maximizing profit by adjusting output to maximize profit (as all the other 1999 dairies, you are completely vertically integrated from dairy farm to the grocery store shelves). 1. How does the milk industry fair in terms of the perfectly competitive assumptions? In your opinion, which assumptions generally hold and which do not? Explain. 2. Do you think the market for raw milk off the farm is more or less competitive than the market for packaged gallons of milk in the store? Why?

Solution

Ans

1 it fares well compared to most of other industries. The assumptions that hold are large number of buyers and sellers, homogenous good, free entry and exit of firms(such characteristics are present) .The characteristics that don\'t hold are - perfect information, same price, perfect mobility of factors and products, abscence of price controls. (We don\'t find such characteristic practically)

2 market for raw milk is more competitive because products are not differentiated and are perfect substitutes while this is not case with packaged milk.