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The Economics of Intraurban Location decision

The Economics of Intraurban Location decision. 3. introduction. Where firms locate determine future land use, residential location, and transportation decision. Where in the urban area will a firm locate?. If no competitors. Locate in the center of the area to minimize transportation cost.

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The Economics of Intraurban Location decision

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  1. The Economics of Intraurban Location decision 3

  2. introduction • Where firms locate determine future land use, residential location, and transportation decision. • Where in the urban area will a firm locate?

  3. If no competitors • Locate in the center of the area to minimize transportation cost. • If transportation and other cost are substitutable the firm will locate where the MRS of inputs= price ratio

  4. x1 Firm Equilibrium in Two –Factors Market Y1 Y0 Transportation cost Z 0 x0 Other inputs

  5. The case of Competitors • Two producers sell the same good • If cost are the same, and prices are f.o.b. (the buyer pays the price at the plant plus shipping charges). • The boundary of the market area between these two sellers will occur where the fright rate are equal.

  6. Market Areas of Two Firms Cost, Price b Distance

  7. Why Firms Concentrate in Space? • If demand is inelastic • And cost are the same every where • Each producer will continue to move toward the other to increase his share of the market until both end up at the center. • The center is not socially optimum location site A X Y B

  8. Factors that Affect Concentration and Dispersion • Price elasticity of demand • Fright rate as a share of total selling price. Uncertainty about one’s competitors Population densities disperse concentrate

  9. Factors that Affect Concentration and Dispersion • Shape of the marginal cost curve (if constant has no effect, if rising concentrate) P2 P3 P1 MC2 Price, Cost MC2 MC1 MC1 R D Quantity

  10. Price of land and Location Decision • The price of land varies inversely with distance from the center of any city. • If a firm desires cheaper land , it will have to give up access to the central city. • As firm move a way from the center , its revenue decline, operating cost increase (because of poorer accessibility). • There should be some price of land the firm is willing to pay at varying distance from the center that will yield the same level of total profit.

  11. Bid-Price Curve • Show how the price of land must vary with distance for a firm to attain the same level of profit • Bid-Price curve have the following properties: • Single value • Downward slope • Lower curve denotes higher profit. • Don’t intersect.

  12. Single equilibrium Location for a Firm P Price / m BPC1 BPC2 BPC3

  13. Urban Public Facility Location • Where should the police and fire station be located? • Public facilities can be categorized into two classes: • Point patterns. • network. • There are two opposing forces that affect public facility location decision: • Economic scale • Advantage of disperssion

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