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©2009 The McGraw-Hill Companies, All Rights Reserved 2A- Appendix Chapter 2

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Page 1: ©2009 The McGraw-Hill Companies, All Rights Reserved2A-1 Appendix Chapter 2

©2009 The McGraw-Hill Companies, All Rights Reserved 2A-1

Appendix Chapter 2

Page 2: ©2009 The McGraw-Hill Companies, All Rights Reserved2A-1 Appendix Chapter 2

©2009 The McGraw-Hill Companies, All Rights Reserved 2A-2

•Transport cost is dominant location factor

•Procurement cost: Raw materials from input source to production facility

•Distribution cost: Output from production site to market

•Issue: Where will a transfer-oriented firm locate?

Introduction: Transfer-Oriented Firms

Page 3: ©2009 The McGraw-Hill Companies, All Rights Reserved2A-1 Appendix Chapter 2

©2009 The McGraw-Hill Companies, All Rights Reserved 2A-3

•Single transferable output

•Single transferable input; other inputs are ubiquitous

•Fixed factor proportions

•Fixed prices of inputs & outputs

Assumptions of Classic Model

Page 4: ©2009 The McGraw-Hill Companies, All Rights Reserved2A-1 Appendix Chapter 2

©2009 The McGraw-Hill Companies, All Rights Reserved 2A-4

•Total revenue is the same at all locations

•Input costs are the same at all locations

•Minimize Procurement cost + Distribution cost

•PC = wi * ti * x

•DC = wo* to *(xM - x)

Transfer-Oriented Firm Minimizes Transport Costs

Page 5: ©2009 The McGraw-Hill Companies, All Rights Reserved2A-1 Appendix Chapter 2

©2009 The McGraw-Hill Companies, All Rights Reserved 2A-5

•Cost of transporting inputs large relative to cost of transporting outputs

•Examples

•Weight losing: Baseball bats

• Inputs are perishable: canning

• Inputs are bulky, fragile, or hazardous

Resource-Oriented Firms

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©2009 The McGraw-Hill Companies, All Rights Reserved 2A-6

Page 7: ©2009 The McGraw-Hill Companies, All Rights Reserved2A-1 Appendix Chapter 2

©2009 The McGraw-Hill Companies, All Rights Reserved 2A-7

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©2009 The McGraw-Hill Companies, All Rights Reserved 2A-8

•Soybean and vegetable oil: Nebraska, North Dakota, South Dakota

•Mile and cheese: South Dakota, Nebraska, Montana

•Sawmills: Arkansas, Montana, Idaho

Industries Locating Close to Transportable Inputs

Page 9: ©2009 The McGraw-Hill Companies, All Rights Reserved2A-1 Appendix Chapter 2

©2009 The McGraw-Hill Companies, All Rights Reserved 2A-9

•Cost of transporting outputs large relative to cost of transporting inputs

•Examples

•Weight gaining: Bottling firm

•Bulky output: Automobile assembly

•Perishable output: Bakery

•Hazardous output: weapons

Market-Oriented Firms

Page 10: ©2009 The McGraw-Hill Companies, All Rights Reserved2A-1 Appendix Chapter 2

©2009 The McGraw-Hill Companies, All Rights Reserved 2A-10

Page 11: ©2009 The McGraw-Hill Companies, All Rights Reserved2A-1 Appendix Chapter 2

©2009 The McGraw-Hill Companies, All Rights Reserved 2A-11

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©2009 The McGraw-Hill Companies, All Rights Reserved 2A-12

Principle of Median Location

•Transport costs minimized at the median location

•Median: separates destinations into two equal halves

Page 13: ©2009 The McGraw-Hill Companies, All Rights Reserved2A-1 Appendix Chapter 2

©2009 The McGraw-Hill Companies, All Rights Reserved 2A-13


© The McGraw-Hill Companies, All Rights Reserved APPENDIX C DESIGNING DATABASES APPENDIX C DESIGNING DATABASES

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