PLANNING ASSIGNMENT NO.

LOCATION THEORY OF VON THUNNEN

Thünen's model of agricultural land

Thünen was a Mecklenburg landowner, who in the first volume of his treatise The Isolated
State (1826) developed the first serious treatment of spatial economics and economic geography,
connecting it with the theory of rent. The importance lies less in the pattern of land use predicted
than in its analytical approach.
Thünen developed the basics of the theory of marginal productivity in a mathematically rigorous
way, summarizing it in the formula in which

where R = land rent; Y = yield per unit of land; c = production expenses per unit of commodity;
p=market price per unit of commodity; F = freight rate (per agricultural unit, per mile);
m=distance to market.
Thünen's model of agricultural land, created before industrialization, made the following
simplifying assumptions:

 The city is located centrally within an "Isolated State."

 The Isolated State is surrounded by wilderness.
 The land is completely flat and has no rivers or mountains.
 Soil quality and climate are consistent.
 Farmers in the Isolated State transport their own goods to market via oxcart, across land,
directly to the central city. There are no roads.
 Farmers behave rationally to maximize profits.
The use which a piece of land is put to is a function of the cost of transport to market and the
land rent a farmer can afford to pay (determined by yield, which is held constant here).
The model generated four concentric rings of agricultural activity. Dairying and intensive
farming lies closest to the city. Since vegetables, fruit, milk and other dairy products must get
to market quickly, they would be produced close to the city.
Timber and firewood would be produced for fuel and building materials in the second ring.
Wood was a very important fuel for heating and cooking and is very heavy and difficult to
transport so it is located close to the city.
The third zone consists of extensive fields crops such as grain. Since grains last longer than
dairy products and are much lighter than fuel, reducing transport costs, they can be located
further from the city.
Ranching is located in the final ring. Animals can be raised far from the city because they are
self-transporting. Animals can walk to the central city for sale or for butchering.
Beyond the fourth ring lies the wilderness, which is too great a distance from the central city
for any type of agricultural product.
Thünen's rings proved especially useful to economic history, such as Fernand
Braudel's Civilization and Capitalism, untangling the economic history of Europe and
European colonialism before the Industrial Revolution blurred the patterns on the ground.
In economics, Thünen rent is an economic rent created by spatial variation or location of a
resource. It is 'that which can be earned above that which can be earned at the margin of
production'.
The Thünen rings[edit]

Thünen's model: the black dot represents a city; 1 (white) dairy and market gardening; 2
(green) forest for fuel; 3 (yellow) grains and field crops; 4 (red) ranching; the outer, dark
green area represents wilderness where agriculture is not profitable
In his theory of "The Isolated State", he started out from Adam Smith's idea of "economic
man": that the farmer is expected to maximize his profit ("economic rent") from his farmland.
Thünen, as a landlord, knew that such returns depends on an optimal use of the land surfaces
and the transport costs. In concentrating on the effects of these two variables on profits,
removal of other factors results in a homogeneous – and isolated – state: A circular,
completely undilating plane with a single, dominant market in the center and no interactions
with the outside. The economy in the surrounding rural area would have to rearrange itself
according to economic behavior in such a way that each industry brings optimal profit in:
Transport cost depends on the distance from the market and different kind of products. The
gain from farming per unit area (vocational rent) decreases with increasing distance from the
market. The minimum price of a commodity is calculated by vocational rent, transport costs
and fixed production costs – the profit is then the difference between the costs and the fixed
market price.
Locational rent, a term used by Thünen in his argument, is to be understood as the equivalent
to land value. It corresponds to the maximum amount a farmer could pay for using the land,
without making losses. The location rent is given by the following equation:

where the variables are defined as follows:

 L: Locational rent (in DM/ )

 Y: Yield (in )

 P: Market price of the crop (in )

 C: Production cost of the crop (in )

 D: Distance from the market (in )

 F: Transport cost (in )

Take the locational rent of a product with a yield of 1,000 , for example, with a fixed price
of 100 DM/t in the market. Production and transport costs are respectively, 50 DM/t and 1
DM/t/km. The locational rent is 50,000 DM/km2 at the market, 40,000 DM/km2 10 km from the
market and only 20,000 DM/km2 30 km from the market. Since locational rent falls with
increasing distance from the market, the amount each farmer is willing to pay for agricultural
land will shrink and the price of land will eventually decline.
Thünen concluded that the cultivation of a crop is only worthwhile within certain distances
from the city: beyond that, either the cost of the land becomes too high, with increasing
distances transport costs also increase, or, if there is another product having greater yield or
lower transport costs. After a distance from the market (the city) the production of a crop
becomes unprofitable, either because its profits drop to zero or the profits earned by other
crops are higher, as von Thünen calculated them for products having different intensities
(cattle, wood, grain, eggs, milk, etc.): For each product there is a certain distance from the
city where its production would be worthwhile. Since Thünen referred transport costs directly
to the market ("Luftlinie"), circular land use zones arises - the Thünen rings.
The farmers of these products compete against each other, plant their crops concentrically
around the market according to the locational rent curves of their own crops. Products having
low yields with high price and high transport costs relative to its weight or distance due to its
weight, will have higher locational rent close to the market than a product having lower
transport costs. Locational rent is the highest possible amount one will pay for the use of the
land for a certain cultivation, and is a relative indicator of competitiveness of it in the market.
Natural wage[edit]
In the second volume of his great work, The Isolated State, Thunen developed some of the
mathematical foundations of marginal productivity theory and wrote about the Natural Wage
indicated by the formula √(AP), in which A equals the value of the product of labor and capital,
and P equals the subsistence of the laborer and their family. The idea he presented is that a
surplus will arise on the earlier units of an investment of either capital or labor, but as time
goes on the diminishing return of newer investments will mean that if wages vary with the
level of productivity those that are early will receive a greater reward for their labor and capital.
But if wage rates were determined using his formula, thus giving labor a share that will vary
as the square root of the joint product of the two factors, A and P.
This formula was so important to him that it was a dying wish of his that it be placed on his
tombstone.
In The Isolated State he also coined the term Grenzkosten (marginal cost) which would later
be popularized by Alfred Marshall in his Principles of Economics.
 Weaknesses and criticism[edit]
The model was developed in an isolated state and did not take into consideration differences
in sites (local physical conditions). It can be modified by relaxing some of the conditions set
forth by Thunen:

 differential transportation costs. Example: boats are the cheapest mode of transportation.
 variations in topography
 soil fertility
 changes in demand or price of the commodity
However, the model tends to hold true in most instances.
The theory may break down somewhat in industrial and post-industrial economies as urban
expansion/sprawl occur. For example, modern refrigerators enable perishable products to be
transported longer distances. The theory generalizes that there is one mode of transport,
which is the boat.
Like many other models in geography, Thünen's model was criticized frequently due to its
restrictive nature. The basic conditions of the model, however, could be approximated by
slight modifications of the respective reality. The circular pattern, which can be attributed to
only one market and excluding transport costs gradients running from the centre, is for
example only one of many conceivable geometrical starting situations. If other natural
landscapes or transportation routes are present, the land use zones would be stripe-formed.
If several markets were present, groups of zones would be formed around each market.
A justified objection against it is the reference to the absence of any productive profit. In
Thünen's theory different agricultural uses compete for the optimal location, which results
from the product-specific supply/expenditure relation. The competitive power becomes
indirectly measurable over locational rent. After deducting production costs and location-
specific transport costs, however, nothing more remains of the market profits. The Thuenen
model leads to the idea of complete self-sufficiency among farmers.
Thünen's idea of "economic rent" attempted - while ignoring other characteristics - to explain
the use of zones controlled solely by economically rational perception. Possible consumers
play, finally, the crucial role for the choice of location. At the same time evaluation of all
potential locations is released, which leads to a zoning of the possible offers. This simply
developed space restaurant model reacts however sensitively to changes of the space
overcoming costs. It possesses however due to its universality nevertheless a high value
within geographical questions and methodology. ---- Wikipedia

Location theory, in economics and geography, theory concerned with the geographic location of
economic activity; it has become an integral part of economic geography, regional science, and
spatial economics. Location theory addresses the questions of what economic activities are
located where and why. The location of economic activities can be determined on a broad level
such as a region or metropolitan area, or on a narrow one such as a zone, neighbourhood, city
block, or an individual site.
Johann Heinrich von Thünen, a Prussian landowner, introduced an early theory of agricultural
location in Der isolierte Staat (1826) (The Isolated State). The Thünen model suggests that
accessibility to the market (town) can create a complete system of agricultural land use. His
model envisaged a single market surrounded by farmland, both situated on a plain of complete
physical homogeneity. Transportation costs over the plain are related only to the distance traveled
and the volume shipped. The model assumes that farmers surrounding the market will produce
 crops which have the highest market value (highest rent) that will give them the maximum net
profit (the location, or land, rent). The determining factor in the location rent will be the
transportation costs. When transportation costs are low, the location rent will be high, and vice
versa. This situation produces a rent gradient along which the location rent decreases with
distance from the market, eventually reaching zero. The Thünen model also addressed the
location of intensive versus extensive agriculture in relation to the same market. Intensive
agriculture will possess a steep gradient and will locate closer to the market than extensive
agriculture. Different crops will possess different rent gradients. Perishable crops (vegetables and
dairy products) will possess steep gradients while less perishable crops (grains) will possess less
steep gradients.


Johann Heinrich von Thünen, lithograph by J.H. Funcke after a portrait by W. Ternite.
Bildarchiv Preussischer Kulturbesitz, Berlin
SIMILAR TOPICS
 defense economics
 welfare economics
 agricultural economics
 efficiency
 macroeconomics
 consumption
 postindustrial society
 environmental economics
 transportation economics
 diminishing returns
In 1909 the German location economist Alfred Weber formulated a theory of industrial location in
his book entitled Über den Standort der Industrien (Theory of the Location of Industries, 1929).
Weber’s theory, called the location triangle, sought the optimum location for the production of a
good based on the fixed locations of the market and two raw material sources, which
geographically form a triangle. He sought to determine the least-cost production location within
the triangle by figuring the total costs of transporting raw material from both sites to the production
site and product from the production site to the market. The weight of the raw materials and the
final commodity are important determinants of the transport costs and the location of production.
Commodities that lose mass during production can be transported less expensively from the
production site to the market than from the raw material site to the production site. The production
site, therefore, will be located near the raw material sources. Where there is no great loss of mass
during production, total transportation costs will be lower when located near the market.
Once a least-transport-cost location had been established within the triangle, Weber attempted
to determine a cheap-labour alternate location. First he plotted the variation of transportation costs
against the least-transport-cost location. Next he identified sites around the triangle that had lower
labour costs than did the least-transport-cost location. If the transport costs were lower than the
labour costs, then a cheap-labour alternative location was determined.
Another major contribution to location theory was Walter Christaller’s formulation of the central
place theory, which offered geometric explanations as to how settlements and places are located
in relation to one another and why settlements function as hamlets, villages, towns, or cities.

William Alonso (Location and Land Use: Toward a General Theory of Land Rent, 1964) built upon
the Thünen model to account for intra-urban variations in land use. He attempted to apply
accessibility requirements to the city centre for various types of land use (housing, commercial,
and industry). According to his theory, each land use type has its own rent gradient or bid rent
curve. The curve sets the maximum amount of rent any land use type will yield for a specific
location. Households, commercial establishments, and industries compete for locations according
to each individual bid rent curve and their requirements for access to the city centre. All
households will attempt to occupy as much land as possible while staying within their accessibility
requirements. Since land is cheaper at the fringe of the city, households with less need for city
centre accessibility will locate near the fringe; these will usually be wealthy households. Poor
households require greater accessibility to the city centre and therefore will locate near the centre,
competing with commercial and industrial establishments. This will tend to create a segregated
land use system, because households will not pay commercial and industrial land prices for
central locations.

The Thünen, Weber, Alonso, and Christaller models are not the sole contributors to location
theory, but they are its foundation. These theories have been expanded upon and refined by
geographers, economists, and regional scientists.

SOURCE: https://www.britannica.com/topic/location-theory

MODEL OF WILLIAM ALONZO

Alonso's Bid Rent Function Theory

In 1960 William Alonso completed his dissertation which extended the von Thünen model to urban land
uses. His model gives land use, rent, intensity of land use, population and employment as a function of
distance to the CBD of the city as a solution of an economic equilibrium for the market for space.
The von Thünen model required considerable modification to apply to residential, commercial and
indusstrial land use. In the von thünen model the bid-rent function declined as a result of the increased
transportation costs to transport the produce of one unit of land one additional unit of distance.

A preliminary rationalization of a bid-rent function for a household came out of the Chicago
Transportation Study. There the results indicated that households behaved as though they had a
combined rent and transportation budget such that if transportation cost were higher then the amount
that they would pay for rent is lower.

A more sophicated formulation assumes that households have preferences given by a set of indifference
curves. The bid-rent function is the amount that a household could pay for rent at different location (with
differing transportation costs) such that the same level of satisfaction is achineved; i.e., the household is
on the same indifference curve. This formulation allows for the possibility that different amounts of
housing space could be chosen at different locations. Also it allows for the possibility that higher income
households end up locating in the suburbs because of the relatively cost of open land space there
compared with locations closer the CBD. The bid-rent function would not have to be a straight line.

A shift to a higher bid-rent function for a household involves the acceptance of a lower indifference curve.
This could happen if a household found there was no location where its bid-rent function equalled or
surpassed the market rent.

Bid-rent function theory may be formulated mathematically. Let U(x,h,T) be the utility function of a
household where h is the amount of housing space used, T is the amount of leisure time and x is the
consumption of other goods and services. The budget faced by the household is that of:

px + rh = y0 + w(1-t-T)
or equivalently
px + rh + wT = y0 + w(1-t)

where t is the commuting time, w the wage rate, y0 the nonwage income. Given t, r and p the household
maximizes utility. Alonso's Bid Rent Function Theory

In 1960 William Alonso completed his dissertation which extended the von Thünen model to urban
land uses. His model gives land use, rent, intensity of land use, population and employment as a function
of distance to the CBD of the city as a solution of an economic equilibrium for the market for space.

The von Thünen model required considerable modification to apply to residential, commercial and
indusstrial land use. In the von thünen model the bid-rent function declined as a result of the increased
transportation costs to transport the produce of one unit of land one additional unit of distance.

A preliminary rationalization of a bid-rent function for a household came out of the Chicago
Transportation Study. There the results indicated that households behaved as though they had a combined
rent and transportation budget such that if transportation cost were higher then the amount that they would
pay for rent is lower.
 A more sophicated formulation assumes that households have preferences given by a set of
indifference curves. The bid-rent function is the amount that a household could pay for rent at different
location (with differing transportation costs) such that the same level of satisfaction is achineved; i.e., the
household is on the same indifference curve. This formulation allows for the possibility that different
amounts of housing space could be chosen at different locations. Also it allows for the possibility that
higher income households end up locating in the suburbs because of the relatively cost of open land space
there compared with locations closer the CBD. The bid-rent function would not have to be a straight line.

A shift to a higher bid-rent function for a household involves the acceptance of a lower indifference
curve. This could happen if a household found there was no location where its bid-rent function equalled
or surpassed the market rent.

Bid-rent function theory may be formulated mathematically. Let U(x,h,T) be the utility function of a
household where h is the amount of housing space used, T is the amount of leisure time and x is the
consumption of other goods and services. The budget faced by the household is that of:

px + rh = y0 + w(1-t-T)
or equivalently
px + rh + wT = y0 + w(1-t)

where t is the commuting time, w the wage rate, y0 the nonwage income. Given t, r and p the household
maximizes utility.
SOURCE: http://www.sjsu.edu/faculty/watkins/alonso.htm

DEVELOPMENT PARADIGM

Multiplicity Paradigm (Since 1980s)

Meaning

: This paradigm is also referred as participatory communication for development oranother development.
It came up with a new say which stresses, one way or another, there isinterdependence of nation states.
Development is an integral, multidimensional, and
dialectic process that can differ from society to society. This paradigm emphasizes on cultural identity.Th
erefore, development problem is a relative one. Servaes labeled this theory of development as

“The best of both world views”.

This was the first time that greater emphasis had been put on the interpersonal channels.Therefore,
participatory communication model emphasize people as the nucleus of development.Unlike,
modernization paradigm, it encourages the subject to be the active participator

peoplecentered approach. Therefore, we can call it as bottom-up approach or horizontal

communicationto development as it depends on dialectic process.
Development Model and Development Content

: Development is assumedmultidimensional as it includes social development and good governance,

eliminating poverty,developing democracy, and others, other than economic growth or the struggle to be
free.In Multiplicity Paradigm more attention is paid to the content of development, which implies amore
normative approach. It favors a multiplicity of approaches on the context, the basic, feltneeds, and the
empowerment of the most oppressed sectors of various societies at differentlevels. I.e. Cultural identity,
local knowledge and capability, gender equality, empowerment,good governance, participation, human
right, eradication of poverty, basic needs, anddemocracy.

The causes of underdevelopment:

Internal as well as external factors inevitably influencethe development process. Development has to
be studied in a global context, in which Centerand Periphery, as well as their interrelated subdivisions,
have to be taken into consideration.(Servaes, 2002: 271).

How to effect development:

By giving choice for local people and by contextualizingdevelopment issues. Participation, mobilizing and
giving much emphasis for the public will bringthe intended development.

Where development is applicable:

Locally. In addition, since development is carried outinterdependently, applicable regionally, nationally,

as well as at international levels.

The role of media communication:

Participatory approaches give much emphasis to

poor people so that to make them active participants in their own development. In the participatorymo
del, communication is a process, not a series of products. The role of mass communicationhere was to
narrow the knowledge gap between the information rich and the information poor.Moreover,
communication was considered as a catalyst for change and assumed vital of massmedia when used in
non-commercial and non-Western style of communication.The participatory school (alternative
paradigm), which rejects the two extremes (imitation anddissociation) advocates a two way
communication through creating a media landscape that couldrelate to the grassroots specific realities
and needs. Therefore, as a social institution, the ultimategoal of communication for development is to
democratize citizens and cause positive, effectiveand sustainable change in a society. People
empowerment, mutual understanding, creatingawareness, dialogue, initiating for participation and
mobilization as well.The critics of Alternative Development have focused on the inadequate concern with
the role ofexternal factors and the process of globalization.

1
I.

Introduction
Though several scholars defined development communication differently, the followingdefinition seems
better define the concept. Moemeka,
A. (1994:12) stated, “T
he application ofthe process of communication to achieve development process or objective
.”

Accordingly, different development paradigms or models were emerged on which differentscholars have
shown profound interests. These are modernization, dependency and multiplicity paradigms..
1.

Modernization Paradigm (1945-

1960’s)

Meaning
:
It is the oldest and dominant paradigm founded in Western Neo-classical economictheory. It was the first
attempt to articulate the problem of underdevelopment. This paradigmstresses the transfer of technology,
socio-political culture of developed societies(industrialization) to the traditional societies as the quickest
means to let them enjoydevelopment. In other words, imitation of Westerns or Westernization is
development.Modernization paradigm advances the order notion that all traditional societies should
passthrough similar stages in to be a modern society. This model is authority based, top-down,expert-
driven, non-negotiable, well-intentioned and it is all about vertical communication.

Development model and development content

:Theorists like Daniel Lerner, WilburSchramm, Walter Rostow, Everett Rogers, and others were much
dealt with this model.Almostall theorists of this paradigm stated the stage toward development, assuming
their ways fits all.
That‟s why it was called the stage or behavior
al change model.Development contents were, as cited in Pieterse, Jan N., a
ccording to Rajni Kothari, „wherecolonialism left off, development took over‟ (1988: 143).
This means much of the contents wereentertainment, news and trivial and not focused on development,
mostly. Contents were based on behavioral change and imported from West. I.e. democracy,
education, industrialization, modernagricultural practices, Western culture, urbanization, health and etc.
In addition, broadcasting

2
system of the modernization paradigm privileged individualism, consumerism, patriarchy, whitemale
dominance, and many other westernized themes.The messages were top down approach; perpetuating the
very of Western as urban and powerfulelites controlled the media that is supposed to promote
development.
The causes of underdevelopment:

were internal to third world nations that can be cured byexternal factors (by technological aid). Lack of
(information, knowledge, big capital, expertise,and modern social organizations), indigenous culture,
backward technology, corruption,traditional values and attitudes are all causes of underdevelopment.
Anything against industrialdevelopment was assumed as the cause for underdevelopment.
How to effect development
:
evolution terminating which involves a phased, lineal,irreversible, progressive, and lengthy process
modeled on the development paths of thedeveloped world. In addition to, resembling Western is assumed
a short cut to development;traditionalism, bad taste, superstition, and fatalism which were obstacles have
to be removed. Onthe other hand, the massive transfer of capital, ideology, technology, and know-how,
aworldwide Marshall Plan, and a green revolution are the means of modernization/development.
Where development is applicable
:
as it is centralized state model, development is applicablemainly at cities or centers of south hemisphere
countries. I.e. individuals from highersocioeconomic strata living in cities and towns (metropolitan).
The role of media communication
: Because the problem of underdeveloped regions
was believed to be an information problem, media communication was presented as the instrumentthat
wouldlead directly and play a central role to solve it. Later, even seen as, the proxy todevelopment.The
media were both channels and indicators of modernization. They aremotivators and movers for change
and modernization since the mass media could speed up andease the long slow transformation.

3
The most significant in explaining the role of communication in this paradigm are Daniel Lerner,
with his concept of „empathy‟, Everett Rogers with his idea of „Diffusion of innovations‟ and
Wilbur schramm with the importance of mass media in modernization process in persuading the
receivers to adopt it and termed it as the „magic multipliers,‟ therefore, the mass media wasregarded as,
„mobility multipliers.‟
Critiques on Modernization paradigm:
Albeit efforts had been made by Western scholars,at last, what ought to be seen was lacked though there
were some improvements. I.e. education,health, and agrarian practices improved in the southern
hemisphere
.

In a nutshell, it ignored indigenous ways, historical and cultural traits of third world nations,focuses on
individual level, ignored the issue of media ownership, control, content, and structure,at the expense of
these, contents were based on,mostly, Americanization. On the other hand,lack of participation is a failure
for dominant paradigm. In addition, it promoted external causesof poverty and underdevelopment, and
blames the victims themselves for their poverty.
2.

Dependency Paradigm (Late 1960s to 1980s)

Meaning
: This paradigm came as counteract to dominant paradigm and it is the firstdevelopment theory that was
formulated in poorer nations. The chief architect of dependencytheory was Raiil Prebisch, an Argentine
economist. This paradigm was informed by Marxist andcritical theories and highly focused on the effects
of dependency.

Theorists of this paradigm believed underdevelopment is a result of the world process of

capitalaccumulation and it cannot be seen apart from development. Dependency paradigm is wellknown
for its cultural imperialism approach that proposes a dominant sociopolitical groupinfluences and shapes
the culture of weaker groups, or nations, through mass media and other practices and institutions.
Development Model and Development Content
:Herbert Schiller and others stated thefoundation for a theory of cultural imperialism. It rested on three
key ideas: first, in a free market

4
the economically powerful will become more powerful while the poor will get poorer, second,further
concentration of media ownership will influence and reduce the variety, plurality, andtype of messages in
the media, and third, media technology is a social tool, created and used forsociopolitical means and
economic ends (Cited in Mcphail, T.L.2009 :24).Theorists like Paul Baran, Andre Frank, Fernando
Henrique Cardoso, Paul Prebisch, PauloFreire, Dos Santos, Samir Amin, Beltran, Diaz-Bordenave and
others were forerunners of the paradigm. Development contents were focused
local industrialization, political revolution, massmobilization, socialism themes and extensive coverage of
local issues and others, though therewere also imported programs from Second world nations.
The causes of underdevelopment:
External; political or underdevelopment caused by theirreliance and dependence on more economically
developed countries. I.e. capitalism. The flipside of developed world became underdevelopment for the
third world nations. The developingworld politically and culturally dependent on Western nation
particularly US.

How to effect development

:

„Dissociation‟
(political, economic and cultural self-determination) strategy for developing nations from world market
and information system and
develop a „self
-
reliant‟ development str
ategy. A change in media structures, break

away from thecapitalist system and turn towards socialist system are stated by proponents of
the paradigm.
Unlike modernization, which gave emphasis to „economic struggle‟, dependency reflects the

guest for „political struggle‟ (the way out and heading for socialism).

Where development is applicable:

N
ational and international. Nationally, developingcountries on the periphery were to become economically
self-reliant and less dependent onforeign imports. Internationally, they would form alliances among
themselves to create astronger political presence. The ultimate goal would be to change the overall
international set ofrelationships by forming a bloc of many countries with similar aspirations.

The role of media communication:

put the media in the service of the people to promotenational and public goods rather than as pipelines
for capitalist ideologies. This paradigm did not
RELATED PAPERS
-GROWTH POLE THEORY

Proponent is Francois Perroux (1949)

A growth pole is an industry or perhaps a group of firms with an industry. At an extreme a growth pole
might be a single firm or it might be a group of industries. Abstract economic space. Perroux conceived
of abstract economic space to be of three types:

An economic plan, A field of force or influence, a homogenous aggregate

-CENTRAL POLE THEORY

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-THRESHOLD POPULATION
In microeconomics, a threshold population is the minimum number of people needed for
a service to be worthwhile.
In geography, a threshold population is the minimum number of people necessary before a
particular good or service can be provided in an area. The concept is equivalent to the "range"
in central place theory and retailing, which delineates the market area of a central place for a
particular good or service, and is dependent on the spatial distribution of population and the
willingness of consumers to travel a given distance to purchase particular goods or services.[1]
Typically a low-order shop (such as a grocer or newsagent) may require only 800 or so customers,
whereas a higher-order store such as Marks and Spencer or Waitrose may need a threshold of
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Thresholds may also be linked to the spending power of customers; this is most obvious in periodic
markets in poor countries, where wages are so low that people can buy the goods or services only
once in a while.
-MARKET RANGE

-HIERARCHY OF SERVICES

The points of view I had been reading suggested that a similar hierarchy exists when it comes to meeting
consumer needs and motivations with customer service. There are different levels of service which
companies may provide, but the ones at the bottom of the service hierarchy need to be delivered before
the ones higher up can be meaningful and have impact.

Here’s what I’m thinking:

If Maslow’s level 1 = physiological needs — literal requirements for human survival

Then Service level 1 = basic delivery – simply delivering the requirements. For a fast food restaurant, this
would mean the food is hot, the drinks are cold, the service is fast and accurate.
If Maslow’s level 2 = safety needs – needs that express a yearning for a predictable orderly world in which
perceived unfairness and inconsistency are under control, the familiar frequent and the unfamiliar rare.
Then Service level 2 = commitment and consistency – This is about doing what you say you do (no brand
promise:reality gap) and doing it consistently.

If Maslow’s level 3 = love and belonging — emotionally based relationships – friendship, intimacy, family
Then Service level 3 = personal and personable service – Calling people by name, showing appreciation
for their patronage, attending to their personal needs are some examples.

If Maslow’s level 4 = esteem – needing to be accepted and valued by others

Then Service level 4 = making customers feel accepted and valued – By rewarding high value customers,
offering ways to connect with others in the brand community, and being transparent, companies deliver
this service level.

If Maslow’s level 5 = self-actualization – needs to realize a person’s full potential — to become more and
more what one is, to become everything that one is capable of becoming
Then Service level 5 = helping people feel good about who they are –
This last area is a little of a stretch but I do think this is where the right kind of service can make the most
difference. This is about making people feel smart rather than stupid because they had to ask for help;
helping them feel like they’ve made a good choice by supporting their purchase decision with added-value
services; making them feel like they’re important, not only to you, but to others in their lives or in the
brand community.

With Maslow’s theory as a model, the Service Hierarchy explains why a company can’t expect to truly
fulfill its customers’ service needs if it skips over the fundamentals at the bottom of the hierarchy and
only focuses at the top – e.g., giving me a special “thank-you” gift is pretty meaningless if my order was
incorrect in the first place.

-LEAST COST APPROACH

Least-cost planning methodology (LCPM), also referred to as "least-cost planning" (LCP) is a
relatively new technique used by economists for making rational decisions about investments in
transport and other urban infrastructure projects.
It is based on cost–benefit analysis. However, it is more comprehensive in that it looks at not only
the total costs and total benefits for an individual project, but it also examines the total costs and
benefits for all alternatives or combinations thereof and treats them on an "equal footing." These
alternatives include not only construction projects but also demand reduction measures, such
as road pricing, developing more walkable neighbourhoods and promoting telecommuting.
Equal footing means that there is no discrimination against some alternatives based on political or
ideological factors.
LCPM itself is generally more costly than cost–benefit analysis, because of the requirement to study
objectively all potential alternatives. However, it can provide large savings to taxpayers because it
will do a better job of selecting those projects which maximise benefits while minimising costs.
There has been a trend in the US towards making LCPM mandatory for regional transport plans. For
example, it has been required by Washington State law (RCW 47.80.030) for regional transport
plans since July 1st 1994.
-PROFIT MAXIMIZING APPROACH
In economics, profit maximization is the short run or long run process by which a firm determines
the price and output level that returns the greatest profit. There are several approaches to this
problem. The total revenue–total cost perspective relies on the fact that profit equals revenue minus
cost and focuses on maximizing this difference, and the marginal revenue–marginal cost perspective
is based on the fact that total profit reaches its maximum point where marginal revenue equals
marginal cost.

Any costs incurred by a firm may be classed into two groups: fixed costs and variable costs. Fixed
costs, which occur only in the short run, are incurred by the business at any level of output, including
zero output. These may include equipment maintenance, rent, wages of employees whose numbers
cannot be increased or decreased in the short run, and general upkeep. Variable costs change with
the level of output, increasing as more product is generated. Materials consumed during production
often have the largest impact on this category, which also includes the wages of employees who can
be hired and laid off in the span of time (long run or short run) under consideration. Fixed cost and
variable cost, combined, equal total cost.
Revenue is the amount of money that a company receives from its normal business activities,
usually from the sale of goods and services (as opposed to monies from security sales such as
equity shares or debt issuances).
Marginal cost and revenue, depending on whether the calculus approach is taken or not, are defined
as either the change in cost or revenue as each additional unit is produced, or the derivative of cost
or revenue with respect to the quantity of output. For instance, taking the first definition, if it costs a
firm 400 USD to produce 5 units and 480 USD to produce 6, the marginal cost of the sixth unit is 80
dollars.