The objective of this study is to determine Virginia dairy producers’ competitiveness in an industry that is experiencing changing policy and marketing conditions. The competitiveness of Virginia dairy producers is examined in a National Dairy Model that compares both producers’ cost of production across market areas and spatial relationships among producers and consumers. The National Dairy Model (NDM) is a mathematical programming model that minimizes the total costs of producing milk and the assembly costs of shipping dairy products to the final consumer. A state's cost of production in the NDM is determined with a translog cost function. The cost functions are estimated with data collected in the 1989 and 1993 dairy versions of the Farm Costs and Returns Survey (FCRS). The supply and demand information in the NDM is annual data for 1994. Transportation costs are determined with current hauling rates and actual mileage between supply and demand points. Once the costs of production and spatial components of the NDM are formulated, the NDM is solved using the General Algebraic Modeling System (GAMS). The NDM is evaluated under the guidelines of several different scenarios. For example, some alternative marketing scenarios that provide important information about the future of the dairy industry are (1) simulations where the hauling rates are varied, (2) scenarios in which the U.S. becomes a major participant in the export market, and (3) situations where the marketing environment leads to increasing costs of production. Another alternative scenario involves only the spatial dimension of the NDM. Given the current marketing conditions in the dairy industry, the results of the NDM indicate that Virginia dairy producers are competitive in a marketing environment where the location of milk production is determined by a producer's costs of production and location advantages. Using Virginia's translog cost function, the cost per cwt. at the mean of the FCRS production data is $10.60. The cost estimate applies to Virginia's representative dairy farm where the average herd size is 91 cows and annual production per cow is 14,160 pounds. With these estimates and the fact that Virginia producers are near large population centers, the results of the NDM show that Virginia dairy farms are competitive in a deregulated market. / Ph. D.