Temi d'esame svolti di Regional Economics - 1º parziale - voto 30

1) What is meant by market area?

The market areas are a way in which the spatial market is divided among firms. This spatial division comes from the existence of economies of scale and transportation costs.

According to this set of theories, a linear space representing demand, is divided among firms according to 2 factors:

• The production price P_F.
• The transportation cost γ.

P _-> P_F* + γd

Because of the fact that γ is paid by the consumer and because of the law of demand, the customer will patronize (be a regular customer) of the firm that is closer to him.

Being the P_F* (real price) given (because of perfect competition) and γ constant, the customer will choose to buy from the firm that allows him to save more money and buy higher quality.

2) How to define the market area?

Let's assume that demand is evenly distributed along a linear market (a road) and is price inelastic. Each point has the same number of people.

There are 2 firms, A and B, that sell the same product with identical cost of production P_F* only initially.

The cost of transportation is paid by the consumer (γ). γ per unit is constant [€/km] The total transp. cost is proportional to distance.

The locations of the 2 firms are given.

Now we can define the market areas of the 2 firms. The price at which each firm sells the products on the final market is P _-> P_F* + γ . d

It's the same for A and B because we assume a complete market.

Distance that the customer has to cover to reach the shop.

Transp. cost It's the opportunity cost of moving in space.

1) What is meant by market area?

The market areas are a way in which the spatial market is divided among firms. This spatial division comes from the existence of economies of scale and transportation costs.

According to this set of theories, a linear space representing demand, is divided among firms according to 2 factors:

• The production price Pᵏ
• The transportation cost γ → P = P* + γd

Because of the fact that γ is paid by the consumer and because of the law of demand, the customer will patronize (be a regular customer) of the firm that is closer to him.

Being the P* (real price) given (because of perfect competition) and γ constant, the customer will choose to buy from the firm that allows him to save more money and buy higher quality.

2) How to define the market area?

Let's assume that:

• Demand is evenly distributed along a linear market (a road) and is price inelastic. Each point has the same people/m².
• There are 2 firms, A and B, that sell the same product with identical cost of production Pᵏ