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Principle of median location

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The optimum location is the median transport location, the location that splits the total monetary weight of the firm into two equal halves. At the median location, half the monetary weight comes from one direction, and half from the other direction (O'Sullivan 2003, Ch.4)[1].

The transportation costs are minimised if the firm is located at the median customer. If a customer moves further away from the city, the total delivery cost would increase, but the most efficient cost is still incurred by being in the median location. This priciple provides a reason why cities grow (McDonald 1997, Ch.3)[2].

The principle of median location provides another explanation of why large cities become larger. The concentration of demand in large cities causes large cities to grow. The principle of median locaiton also explains why some industrial firms locate at transshipment points (O'Sullivan 2003, Ch.4)[1].

ReferencesEdit

  1. 1.0 1.1 O'Sullivan, Arthur. (2003) Urban economics (McGraw-Hill/Irwin, Boston)
  2. McDonald, John F. (1997) Fundamentals of Urban Economics (Prentice Hall, Upper Saddle River)

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