perfectly competitive nature of this industry could eventually disappear. A necessary
condition for a competitive industry is that there are many firms. To assure an
equilibrium with many firms, they must face increasing average costs well before market
demand is satisfied. If economies of scale and/or scope actually exist over all observed
firm sizes, then we would expect movement toward a single firm. The agricultural
production sector is currently so far from consolidating ownership under a single firm
that the thought seems unimaginable. Yet, if the rate of decline experienced over the last
four decades in the number of farms with milk cows were to continue for 12 more
decades, the entire market for milk in the U.S. would be supplied by just 10 firms.
While much of the earlier research has focused on measuring economies of scale and
scope, cost economies for short, as drivers of firm growth, this paper contributes to the
existing literature by seeking answers to three fundamental questions that have not
previously been addressed. First, do dairy firms in the largest size cohorts grow at least
as rapidly as firms in medium size cohorts? If they grow less rapidly, it would suggest
that convergence toward an equilibrium size could ultimately occur, but that equilibrium
size may not have been observed yet. On the other hand, if firms in the largest size
cohorts grow at least as fast as those in the medium size cohorts, we must conclude that
firms are not yet approaching an equilibrium size. Second, do firms become more
diversified over time? If they do, it would provide evidence of increasing economies of
scope. Third, if they do become more diversified over time, do larger firms diversify
more rapidly than medium-sized firms? If the answer to all three questions is yes, then
even without further analysis, we can conclude unambiguously that the largest firms are
expected to continue to grow more rapidly, and no equilibrium firm size is currently in