Some Theoretical Aspects of the Impact of Selected Demand and Technological Conditions on the Optimum Location of the Firm

Abstract

<p> The Objective of this study is to investigate analytically the impact of certain technological and market conditions on the optimum location of the firm. The existing location models may be divided into those which consider both supply and demand aspects and those which concentrate on supply factors alone. Traditionally, the former group of models define equilibrium as the profit maximizing location and assume both a linear-homogeneous production function and a linear demand function. The latter class of models assume only the linear-homogeneity of production, and equilibrium is found at the cost-minimizing site.</p> <p> In this paper two cases are examined. Firstly, the influence of a general non-linear homogeneous production function on a simple cost minimizing model is considered. Secondly, the effect of non-linear demand functions and non-linear homogeneous technology on a profit maximizing model are assessed. The results indicate that the optimum location in the cost minimizing situation does not vary with the level of output, whatever the degree of homogeneity of the production function. This directly contradicts the common belief regarding the effects of production. Furthermore, in the profit-maximizing problem, and with non-linear homogeneous production, the solution is unaffected by the shape of the demand function.</p> <p> Suggestions for refining and extending this analysis include the use of general rather than specific demand, transportation and production functions: the employment of exhaustible inputs, and generalization to the three-dimensional situation.</p>