Geography Reference
In-Depth Information
M
3
d
3B
d
3A
A
B
d
1B
d
2A
d
2B
d
1A
S
1
S
2
Figure 3.3
Relative input transport costs and location
We can also extend this argument to consider how the locational behav-
iour of different firms will differ according to their production function
characteristics. For example, we can imagine two types of automobile-
producing firms, one of which has a production function which is
relatively plastic intensive, and the other whose production function is
relatively steel intensive. As such, for the moment we associate different
production function characteristics with representing different firms. Firm
A
exhibits the plastic intensive production function, while firm
B
exhibits
the steel intensive production function. As we see in Figure 3.3, from the
argument above we know that firm
A
will locate relatively close to
S
2
, the
source of plastic, while firm
B
will locate relatively close to
S
1
, the source
of steel. If both firms have just a single establishment each, then the actual
locational outcomes can be easily predicted. If, however, the firms are
multiplant establishments, as is the case with all MNEs, then the issue is
far more complex, as we will see shortly.
This basic line of reasoning can also be applied to the case of the rela-
tionship between the firm's chosen optimal location and the transporta-
tion costs involved in its output shipments. Although so far we have only
considered the transport cost pull of the input sources on the location
decision of the firm, the same line of reasoning suggest that the market
itself will display a 'pull' effect on the location behaviour of the manu-
facturing firm. Once again, we can explain this issue by using our hypo-
thetical example above of two automobile producer firms,
A
and
B
, each
consuming inputs of steel and plastic, but in order to simplify the analysis
we can rule out the locational effect of inputs described above by imagin-
ing a situation in which the production function coefficients for the inputs
