Geography Reference
In-Depth Information
reflect higher values of total input plus output transport costs, per unit of
output
m
3
produced, relative to the Weber optimum
K
*. In other words, if
the location of the firm were to be moved away from the Weber optimum
in any direction, the firm would be incurring increasing transport costs
relative to the Weber optimum. The result of this is that,
ceteris paribus
,
if factor prices are equal across space, the firm would exhibit succes-
sively lower profits relative to
K
*, and therefore locations further away
from the Weber optimum will become successively less desirable sites for
investment.
This line of argument now allows us to ask directly the question: by how
much do
local
factor prices need to fall at a particular location, relative
to the Weber optimum location
K
*, in order for the firm to move to that
particular location?
If we take the case of location
H
, we can thus ask by how much do
factor prices at
H
need to fall relative to the Weber optimum
K
*, in order
for the firm to move from
K
* to
H
? As we see from Figure 3.6,
H
is on the
$50 isodapane. If the costs of the labour and land factor inputs required
to produce one unit of output
m
3
at
H
are $40 less than at
K
*, it will not
be in the interest of the firm to move from
K
* to
H
. The reason is that the
fall in local factor input prices of $40 associated with a move from
K
* to
H
would not be sufficient to compensate for the increased total transport
costs of $50 if the firm's location were moved this far away from the Weber
optimum
K
*. As such, if the firm's location was moved from
K
* to
H
under these circumstances it would experience profits which were $10 per
unit of output
m
3
less than at
K
*. On the other hand, if the local labour
and land prices per unit of output as
H
were $55 less than at
K
*, it will be
in the interest of the firm to move, because the reduction in the local input
factor costs associated with a move from
K
* to
H
will be greater than the
total transportation costs incurred by the move. The lower local factor
prices therefore more than compensate for the increased total transport
costs. Under these circumstances the firm would experience profits which
were $5 per unit of output
m
3
greater than at
K
*.
This type of argument can be equally applied to any alternative loca-
tions, such as
C, D, E, F G, I
or
J
, in order to determine whether or not a
firm should move away from
K
*, and which location it should relocate to.
For example, location
G
is on the $20 isodapane,
H
is on the $50 iso-
dapane,
I
is on the $80 isodapane and
J
is on the $100 isodapane. Let us
assume that the costs of the labour and land factor inputs required to
produce one unit of output
m
3
at
G
,
H
,
I
, and
J
are less than the factor
costs at
K
* by amounts of $22, $55, $84, and $106, respectively. We can
determine that all these alternative locations from
G
to
J
are superior loca-
tions to
K*
, in that they all will provide greater profits than
K
*. However,
