REM 520 Lecture 6: REM520 CHAPTER 3
21 Sep 2016
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Economic forces that causes firms to locate close to each other in clusters . Forces acting on firms in a single industry together . Firms in one industry attracts firms in other industries. Led to development of large and diverse cities. Ex: corporate hq of different industries cluster in cities. Intermediate input = something that one firm makes that a second firm uses as an input in its production process. It"s more beneficial for dressmakers in a cluster because of lower cost per button, there"s min. modification costs involved and will have higher demand (which allows button makers to exploit scale economies) Lower costs gives incentives for dressmakers to cluster to share a button maker. Firms share suppliers of intermediate inputs (ie. electronic components) and product testing services. Benefits of clustering: lower average cost of props. Costs of clustering: greater competition for labour, higher wages of workers. As the # of firms in cluster increase, profit increases then decreases (inverted.
