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Industrial Location Economics

Edited by Philip McCann

Because space is not homogenous, economic activities occur in different locations. Understanding the reasons behind this and understanding exactly how industries are spatially organized is the central theme of this book. Industrial Location Economics discusses different aspects of industrial location behaviour from a variety of theoretical and empirical perspectives. Each of the analytical traditions provides insights into the nature of industrial location behaviour and the factors which can influence it.
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Chapter 1: Classical and Neoclassical Location–Production Models

Philip McCann


1. Classical and neoclassical location– production models Philip McCann University of Reading, UK 1. INTRODUCTION TO LOCATION–PRODUCTION THEORY Microeconomic textbook models of firm production behaviour are almost always aspatial in nature. In other words, the role of geography in influencing firm production and consumption relationships is ignored. At the same time, without any explicit analysis of the relationship between geography and production behaviour, it is not possible to discuss how the production relationships of a firm will affect its geographical behaviour. These are the problems addressed by location–production theory, which attempts to set orthodox microeconomic production theory within an explicitly spatial framework. The objective of the analysis is to understand how optimum production arrangements, in terms of relative input consumption levels, are related to spatial costs. These analyses then attempt to explain how changes in spatial economic costs themselves affect the optimum location of the firm. Location–production models are inherently microeconomic in nature, in that they analyse the production behaviour of an individual stylized firm in relation to the spatial economic costs it faces. Spatial economic costs can be divided into two types, namely those that are incurred at a point in space, and those that are incurred in the overcoming of space itself (McCann, 1995). For example, local labour prices and land costs will fall into the former category, whereas transportation costs and telecommunications costs will fall into the latter. Both individual changes and changes in the relationship between these placespecific costs and the...

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