Welfare-maximizing and profit-maximizing agroindustry location: A comparison

Abstract.

Traditionally, the location model has assumed that firms choose their location and input usage so as to maximize their profits. However, in the planning version of the location model, the industrial location might be selected on the basis of a welfare-maximizing objective. This paper attempts to develop systematically the theory of plant location for a welfare-maximizing agroindustrial firm and to compare it with its profit-maximizing counterpart. Our analysis shows that, unless the transport cost of raw materials is linear in distance and the firm's production function is homogeneous of degree one, the welfare-maximizing location chosen by a regulated agroindustrial firm always differs from that of its profit-maximizing counterpart. It also demonstrates that the results obtained previously for a non-agroindustrial firm cannot be applied directly to its agroindustrial counterpart.