Download - The Optimal Business Location Model
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The Optimal Business Location Model
By: Mitchel Gorecki
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Purpose
To create a comprehensive model that will predict the optimal location for a business.
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Method
• Identify and weight the key characteristics of an area that contribute to a business’ success
• Combine these characteristics into a formula or model that will indicate the optimal place of establishment
• Evaluate effectiveness by applying model to predict current outcomes
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Example of Evaluating Factors
Kuo and Kao (2005)
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Example of Parameter Weights
Kuo and Kao (2005)
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Specific Example – Road Configuration
Kuo and Kao (2005)
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Problem• Most models produce an output given various
inputs• In our case the output needs to be an area or
location
• Employ matrices to create a 3-dimensional model that can be represented graphically
Solution
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A Mini-Matrix of Parking Availability
• The cell (3,2) has the maximum parking availability, with a value of 8/10
• The scaling factor in this case is .1648
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Durham in 1925
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Example of Matrix
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Major areas of business will occur where the cost to the consumer is at a minimum.
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Results3 Indicators of Success
1. The given area must have a peak when looking at the meshplot of the sum of evaluative matrixes.
2. Given a highly competitive situation, a firm must understand that primary places of commerce will form where the cost to the consumer is at a minimum.
3. The first partial derivatives in the x and y direction must be between 0 and -1.
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In every model there is a but…
• No two firms are identical. As it is, this model only predicts the relativistic probability of success for a business given a particular location.
• Each business must identify which aspects of the model are most relevant.– For instance, a gas station would give greater
weight to consumer cost minimization and would care less as to whether or not the area has reached its business capacity.
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Any Questions?