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The aim of this study was to analyses the economic cost of dairy milk production in Erbil district in Kurdistan Reign Iraq.The present study was undertaken to find out the cost and returns of milk production. Milk production in Kurdistan is mainly concentrated on small farms in rural areas as a subsidiary occupation to agriculture. In addition to this, there are a number of organized dairy farms. In this region, the low genetic potential of the animals results in the high cost and low milk production. The profit margin can be increased, by decreasing the cost of production. The number of farms in the research area was determined through stratified random sampling method. The data were collected from a total of 20 selected farms by means of survey method. The selected farms were divided into three groups (5 to≤10 cattle, 11 to ≤25 cattle and equal 26 and >27 cattle). Data was collected on size of farmer land, livestock strength, and status of milk animals, sale and purchase during the year, labor cost, and value of shed, health cover, concentrates cost, veterinary cost and miscellaneous production cost. Multiple regression and Cobb-Douglas production function were estimated by using Ordinary Least Squares (OLS) method. The data were based on the 2021 production period. The study concluded that the average daily milk yield and lactation milk yield per cow of farms were 9.500 kg and 2900 kg/year. The study aimed at finding out the net profit scenarios for livestock and their products. The final product of this research endeavor is to draw policy lessons that can help refining the imbalances and distortions in the milk market. It was concluded that average fixed cost per animal was 49.500, 29.000 and, 7.250.IQD of large, medium and small farmer per month, and variable cost were, 162.500, 93.250 and, 48.250 IQD for large, medium and small farmers per month. The average milk yieldper day was 12.250, 9.250 and 6.750 litter. The cost of milk production per litter was, 825, 910 and, 750 IQD for large, medium and small farmers. The econometrics result showed that livestock production is depicting “increasing return to scale” in the study area. An incentive policy focus in the sector would help alleviating poverty at a large scale in rural areas of Kurdistan.