Optimal Scale in a Large Homogeneous Area

Preprint
Publisher Website
Google Scholar
    • preprint
      • Published in RePEc
Abstract
The conditions under which transportation costs "balance out" returns to scale for many distinct production units on a large homogeneous plain are examined. Starrett's optimality principle is derived: that the Average Degree of Increasing Returns (ADIR) in an optimally sized production unit equals one half transportation costs. ADIR is defined as the difference between the value of inputs to producers and the value of output. We show that existence of optimally sized subareas requires that the elasticity of ADIR/A with respect to the radius of a subarea where A is the area of a subarea must be less than unity. Under certain conditions, hexagonally shaped subareas are optimal. Allocations are examined under different institutional arrangements.
All Related Versions

This publication has 0 references indexed in Scilit: