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McGraw-Hill/Irwin ©2009 The McGraw-Hill Companies, All Rights Reserved Appendix Chapter 4

©2009 The McGraw-Hill Companies, All Rights Reserved 4A-2 Why do cities differ in size and scope? Model of firm location based on access to consumers Ignore production costs Introduction

©2009 The McGraw-Hill Companies, All Rights Reserved 4A-3 Uniform population density No shopping externalities (no one-stop shopping; no comparison shopping) Ubiquitous inputs Uniform demand for each product Characteristics of Region

©2009 The McGraw-Hill Companies, All Rights Reserved 4A-4 Jewelry: Scale economies large relative to per-capita demand 80,000 people to support each store Single store serves entire region Books: Scale economies moderate relative to per-capita demand 20,000 people to support each store Four stores serve the region Pizza: Scale economies small relative to per-capita demand 5,000 people to support each pizzeria 16 pizzerias serve the region Differences across products

©2009 The McGraw-Hill Companies, All Rights Reserved 4A-5

©2009 The McGraw-Hill Companies, All Rights Reserved 4A-6

©2009 The McGraw-Hill Companies, All Rights Reserved 4A-7 Diversity in size & scope from differences in scale economies relative to per-capita demand Small number of large cities and large number of small cities Consumers travel to bigger cities, but not smaller cities of cities of same size Insights into Urban Hierarchy

©2009 The McGraw-Hill Companies, All Rights Reserved 4A-8 Focuses on location decisions based on access to consumers Alternative: Location based on local inputs and agglomeration economies Limits of Central Place Theory