ECO333H1 Lecture Notes - Lecture 4: Facetime, Functional Skills Qualification, Girdle
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Getting things right takes face-to-face interaction (cid:862)fa(cid:272)eti(cid:373)e (cid:373)atte(cid:396)s(cid:863) Firm 5 would not enter the city cluster because a higher profit can be earned on its own. If demand for firm rises, with fixed labour, you bid up wages/ In a small town, when demand is low, cost of labour = 4(12) = 46. We can say that the mpl of worker is . Expected profitisolated = 0. 5(48) + 0. 5(48) = . In big cities, supply of labour is more elastic. Expected profitcluster = 0. 5(3) + 0. 5(147) = . Localization (grow faster) vs. urbanization (functional skills across industries) In a city there is a larger labour pool, which means lower replacement costs, therefore easier to find someone else for the job. Competing firms could locate far apart (giving each other a local monopoly as was seen in chapter 2) or locate close together. Agglomeration economies are the economic forces that cause firms to locate close to one another in clusters.
