Effects of Supply Variations on Costs and Profits of Slaughter Plants*

Preferences of the firm for stable or varying flows of raw products are considered. A decision model involving rate and hours of plant operation is developed to measure the. impact of supply variations on plant costs and profits. Situations in which the firm can and cannot pre-dict raw material receipts with certainty are simulated. Varying supplies were found to raise costs of slaughter, but plants with stable supplies lose profits as long as product and input prices vary. Therefore individual firms, especially those that can forecast with a high degree of success, are unlikely to prefer stable to varying supplies. I NSTABILITY in agricultural processing in-dustries often results from variations in thesupplies of farm products available to pro-cessing plants. To be sure, the processing firm is also likely to be uncertain about other vari-ables; prices of other inputs, qualities of raw-material supplies, and demand conditions for the processed products each may vary and none be subject to prediction with certainty. Variation in raw-product supplies alone does not imply uncertainty, however, for although raw-material supplies may vary the firm may be able to predict the variation. Moreover, quality variations at the firm level should not be viewed separately from fluctuations in raw-product and processed-product prices. Optimal firm output for each production period is a func-tion of the processing margin and other decision variables and will vary from period to period in response to anticipated or actual changes in them. Previous studies usually have been concerned with the effects on annual plant costs of short-term (month-to-month or week-to-week) varia-tions in rates of operation. The general implica-tion of these studies is that uniform flows of raw materials are preferred to unstable sup-plies.&apos