The Optimal Business Location Model

1. The Optimal Business Location Model By: Mitchel Gorecki

2. Purpose To create a comprehensive model that will predict the optimal location for a business.

3. 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

4. Example of Evaluating Factors Kuo and Kao (2005)

5. Example of Parameter Weights Kuo and Kao (2005)

6. Specific Example – Road Configuration Kuo and Kao (2005)

7. 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

8. 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

10. Durham in 1925

11. Example of Matrix

19. Major areas of business will occur where the cost to the consumer is at a minimum.

21. Results3 Indicators of Success • The given area must have a peak when looking at the meshplot of the sum of evaluative matrixes. • 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. • The first partial derivatives in the x and y direction must be between 0 and -1.

23. 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.

24. Any Questions?