Where do firms locate

Question 1

Centralising forces

Answer 1

• scale economies
• agglomeration economies
• transportation cost (depending on input/output features)

Question 2

Decentralising forces

Answer 2

• transportation cost
• disadvantage of agglomeration:
  
  • traffic, pollution, expensive land
• local taxes:
  
  • high tax, efficiency in tax usage for public goods

Question 3

Resource oriented firm (weight losing)

Answer 3

• expensive to ship inputs
• weight losing production process
• perishable or fragile inputs
• hazardous inputs
  e.g. Ore processors locate near mines

Question 4

Market oriented firm (weight gaining)

Answer 4

• saves on transport cost by locating close to markets
  e.g. bakery

Question 5

Where firms locate

Answer 5

in general, if output (input) is relatively bulky, perishable, fragile or hazardous firm will locate market (source of input)

Question 6

fixed cost (scale economies in transportation)

Answer 6

• fixed cost:
  
  • processing paperwork, loading and unloading a shipment
    => average cost of transportation decreases as distance increases

Question 7

Line haul economies (scale economies in transportation)

Answer 7

line-haul economies:
- transport cost per mile decreases as the distance increases, reflecting the efficiencies from using different modes for different distances e.g. truck => train, ship

Question 8

Centralised production vs dispersed

Answer 8

Trade-off: scale economies vs transportation costs

Small establishment in each region:
- efficient transportation but no scale economies

Large establishment in one region:
- increased scale economies but expensive transportation cost

Question 9

What is agglomeration economies

Answer 9

Firms/workers benefiting from industrial clustering