Question

1. Houston as a major metropolitan city, as a business development manager for Diakin, explain why and when does manufacturing become concentrated in a few regions, leaving others relatively undeveloped?

2. Explain the effects of manufacturing become concentrated in a few regions o the land rent and office bid rent?

Answer 1

The location of agricultural production is fixed, but monopolistcally competitive manufacturing finns choose their location to maximize profits. If transportation costs are high, returns to scale weak, and the share of spending on manufactured goods low, the incentive to produce close to the market leads to an equal division of manufacturing between the regions. With lower transport costs, stronger scale economies, or a higher manufacturing share, circular causation sets in: the more manufacturing is located in one region, the larger that region's share of demand, and this provides an incentive to locate still more manufacturing there. Thus when the parameters of the economy lie even slightly on one side of a critical "phase boundary", all manufacturing production ends up concentrated in only one region.

This happens when the society become richer, so that a higher fraction of income is spent on non-agricultural goods and services; let the factory system and eventually mass production emerge, and with them economies of large-scale production; and let canals, railroads, and finally automobiles lower transportation costs. Then the tie of production to the distribution of land will be broken. A region with a relatively large nonrural population will be an attractive place to produce both because of the large local market and because of the availability of the goods and services produced there; this will attract still more population, at the expense of regions with smaller initial production; and the process will feed on itself until the whole of the nonrural population is concentrated in a few regions.

2. The rent on rural agricultural land will decrease and the rent on office bid land would increase. Competition for space and other fixed local resources (collectively termed "land") plays an important role in location, especially in urbanized areas and for activities using much space relative to their outputs. In a free market, land goes to the user who can bid the highest rent or price for it. Price represents a capitalization of expected rents.

The way in which any activity’s rent bids vary over an area (the rent surface) or along a route (the rent gradient) depends on the local qualities of the sites themselves, on their accessibility, and on other factors relevant to the activity’s locational preferences. Rent gradients and surfaces for most activities show peaks at market centers.

When several activities are competing for space around some common market point, the activities that preempt the land with the best access tend to be those that have a large volume of output per unit of space used, those whose output bears high transfer costs, and those least subject to rising operating costs with increased intensity of land use (crowding).

The production and transfer characteristics associated with activities in urban areas cause them to place high value on locations with central access. The location of these activities is especially affected by the need for movement of people and direct personal contact, with time consequently playing the major role in transfer costs and access advantage. Complex linkages among units and activities, and competition for space, are also important location factors in an urban context.

Access considerations play an important role in residential location decisions. The space occupied by a household and commuting costs (especially the opportunity or time cost of commuting) affect its willingness to bid for land with good access to central locations.

The demand for land plays an important role in the market process and is affected by changes in the demand for various activities that compete for its use.