Industrial Location

1
Industrial Location

• Chapter 4

2
Three Isoquants
3
Isocost curve
4
Slope of isoquant

• For a production function with two inputs,
• Along an isoquant, the change in output is zero,
  so
• Therefore,

5
Equilibrium for a Firm

• Slope of Isoquant Slope of Isocost
• or

6
Isocost curve and isoquant map showing a firms
equilibrium
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Resource use based on location
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Pine Grove vs Urban Center

• Pine Grove
• Boughs150 per load
• Wages400 / week

• Urban Center
• Boughs250 per load
• Wages200 / week

9
Three isocost curves for 1,000, 2,000, and
3,000

• Pine Grove
• For 1,000, the firm makes 300 wreaths per week,
  and
• Uses 5.253 loads of pine and 0.53 units of labor
• TC  1,000  (150 ? 5.253)  (400 ? 0.53).
• For 2,000, the firm makes 800 wreaths per week,
  and
• Uses 8 loads of pine and 2 units of labor
• TC 2,000  (150 ? 8) (400 ? 2)

• Urban Center
• For 2,000 the firm makes 800 wreaths per week,
  and
• Uses 4.4 loads of pine and 4.5 units of labor
• TC 2,000  (250 ? 4.4) 
• (200 ? 4.5).
• For 3,000, the firm makes 1,500 wreaths per
  week, and
• Uses 5.6 loads of pine and 8 full-time workers.
• TC 3,000  (250 ? 5.6)  (200 ? 8).

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Longrun average cost curve
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Location orientation chart
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Longhaul economies
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Table 41. Hypothetical Transportation Costs Table 41. Hypothetical Transportation Costs Table 41. Hypothetical Transportation Costs Table 41. Hypothetical Transportation Costs Table 41. Hypothetical Transportation Costs
Distance from the input source Distance from the market to inputs source Column A cost of procuring inputs Column B cost of distributing output Column C total transport costs (A B)
0 10 4.00 6.00 10.00
1 9 4.48 5.95 10.43
2 8 4.92 5.80 10.72
3 7 5.32 5.55 10.87
4 6 5.68 5.20 10.88
5 5 6.00 4.75 10.75
6 4 6.28 4.20 10.48
7 3 6.52 3.55 10.07
8 2 6.72 2.80 9.52
9 1 6.88 1.95 8.83
10 0 7.00 1.00 8.00
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Total Transport Costs
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Table 42. Calculation of Ideal Weights for Two Inputs and an Output Table 42. Calculation of Ideal Weights for Two Inputs and an Output Table 42. Calculation of Ideal Weights for Two Inputs and an Output Table 42. Calculation of Ideal Weights for Two Inputs and an Output
Input A Input B Output
Transport cost per ton per mile 30 20 50
Number of tons per week 30 50 10
Ideal weight 9 10 5
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Firm location on nonlinear routes