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Optimal Scale in a Large Homogeneous Area

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  • John Hartwick

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.

Suggested Citation

  • John Hartwick, 1976. "Optimal Scale in a Large Homogeneous Area," Working Paper 223, Economics Department, Queen's University.
    • Handle: RePEc:qed:wpaper:223
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    Cited by:

    1. G J Papageorgiou, 1977. "Fundamental Problems of Theoretical Planning," Environment and Planning A, , vol. 9(12), pages 1329-1356, December.
    2. Hartwick, John M., 1979. "The Henry George Rule, Scale Economies and Optimal Land Use," Queen's Institute for Economic Research Discussion Papers 275147, Queen's University - Department of Economics.

    More about this item

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • L68 - Industrial Organization - - Industry Studies: Manufacturing - - - Appliances; Furniture; Other Consumer Durables

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