©2009 The McGraw-Hill Companies, All Rights Reserved2A-1 Appendix Chapter 2

©2009 The McGraw-Hill Companies, All Rights Reserved2A-2 Transport cost is dominant location factor Procurement cost: Raw materials from input source to production facility Distribution cost: Output from production site to market Issue: Where will a transfer-oriented firm locate? Introduction: Transfer-Oriented Firms

©2009 The McGraw-Hill Companies, All Rights Reserved2A-3 Single transferable output Single transferable input; other inputs are ubiquitous Fixed factor proportions Fixed prices of inputs & outputs Assumptions of Classic Model

©2009 The McGraw-Hill Companies, All Rights Reserved2A-4 Total revenue is the same at all locations Input costs are the same at all locations Minimize Procurement cost + Distribution cost PC = wi * ti * x DC = wo* to *(xM - x) Transfer-Oriented Firm Minimizes Transport Costs

©2009 The McGraw-Hill Companies, All Rights Reserved2A-5 Cost of transporting inputs large relative to cost of transporting outputs Examples Weight losing: Baseball bats Inputs are perishable: canning Inputs are bulky, fragile, or hazardous Resource-Oriented Firms

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©2009 The McGraw-Hill Companies, All Rights Reserved2A-8 Soybean and vegetable oil: Nebraska, North Dakota, South Dakota Mile and cheese: South Dakota, Nebraska, Montana Sawmills: Arkansas, Montana, Idaho Industries Locating Close to Transportable Inputs

©2009 The McGraw-Hill Companies, All Rights Reserved2A-9 Cost of transporting outputs large relative to cost of transporting inputs Examples Weight gaining: Bottling firm Bulky output: Automobile assembly Perishable output: Bakery Hazardous output: weapons Market-Oriented Firms

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©2009 The McGraw-Hill Companies, All Rights Reserved2A-12 Principle of Median Location Transport costs minimized at the median location Median: separates destinations into two equal halves

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