MATAKULIAH EKONOMI PERKOTAAN

Pertemuan Ke.5

Where do Firm Locate ?

Where Do Firms Locate ?

The location decisiona of firms are based on profit maximization :

1. It is cosly to transport input & output2. Some inputs can’t be transport at all3. Localization economies & urbanization economies4. The public sector levies taxes & provides public good &

services.

TRANSFERABLE INPUTS & INPUT

• Single transferable output

• Single transferable input

• Fixed-factor proportion

• Fixed prices

The firm maximizes its profit by minimizing its transportation cost.

Resources-Oriented Firms

Monetary Weight for a Resource-Oriented firm

Input(wood) output(bats)

Physical weight (tons) 10 3

Transport rate (cost/to/mile) $1 $2

Monetary weight (physical weight $10 $6

Time rate)

Total transport cost for Resources-Oriented Firm

$10

6

2

F 2 4 6 8 10 M

x (distance from forest)

(PC)

(DC)

Total transport cost=PC+DC

PC = wi . ti . X

DC = wo . To .(xM-x)

w = weight (i-o)

t = transport cost

x = distance

Market – Oriented Firms

A marked oriented firm is defined as a firm that has relatively high cost for transporting its output to the market.

Monetary Weight for a Market-Oriented Firm Input(sugar) output(beverage)

Physical weight(tons) 1 4

Transport rate(cost/ton/mile) $1 $1

Monetary weight(physical weight

time rate) $1 $4

Total Transport Cost for a Market-Oriented Firm

$50-

40-

30-

20-

10-

2 4 6 8 10

Sugar x (distance from input r ) M

plantation

Procurement cost

Total transport c = PC+DC

Distribution

cost

Scale Economies in Transportation

• Fixed cost processing paperwork, loading & unloading a shipment

• Average cost transportation decrease as the distance increases.

• Line-haul economies:the transport cost per mile decreases as the distance increases, reflecting the efficiencies from using different mades for diferent distance.

- short haul truck - long haul trains , ships

The Principle of Median Location: to predict where a firm will locateThe optimum location is the median

transport location, the location that splits the total monetary weight of the firm into two equal halves. At the median location, half the monetary weight comes from one direction, and half from the other direction.

Consider the location decision of Ann,who makes and delivers pizzas to consumers along a highway.

a.Pizza delivery & the principle of Median Locationb.Median Location in the Large City

a. W x y s zDistance from w 0 1 2 3 9

Number of consumers 2 8 1 10

Monetary weight $4 $16 $2 $20

b.

Location S1 S2 S3 S4 L

Demand 4 4 4 4 17

Transshipment Points and Port Cities

The sawmill Locates at the Port

Input sources A

Monetary weight=$15

Input sources B

Monetary weight=$15

Output market Port

M P

Monetary weight=$10

A. ENERGY ORIENTATIONB. LOCATION & URBANIZATION ECONOMIES

A What is the role of energy in the location decision of firm ?

The development of electricity affected the location patterns of manufacturers.

For some activities, the availability of cheap energy is still an important location factor.

B Urbanization economies refer to the cost savings associated with producing in a large city. Afirm that benefits from urbanization economies will be pulled toward large cities, with their inexpensive intermediate goods and services, extensive knowledge spillovers, and large labor poll. Urbanization economies lead to self reinforcing growth, as firms locate in large cities because so many other firms are already located there.

LABOR MARKETS AND LOCATION CHOICES

• Transport Cost versus Labor Cost

• Labor in the Long Run

• Labor and Natural Amenities

• Learning and Location

LOCAL PUBLIC SERVICES AND TAXES

• Taxes and Location Decisions

• Public Services and Location Decisions

• Subsidies and Incentive Program : 1. Tax abatement

2. Industrial bonds

3. Government loans and loan guarantess

4. Site development

• Professional Sports, Stadiums ,and Jobs

CASE STUDIES AND EMPIRICAL RESULTS

• The Semiconductor Industry. 3 types of labor : 1. Research & development

2. Wafer fabrication 3. Assembly Into component

• Japenese Automobile Firms• Mexican Garment Industry• Carpet Manufacturing & Location Ec.• GM’s Saturn Plant• Effects of Wages and Unions