The Optimal Business Location Model By Mitchel Gorecki

The Optimal Business Location Model By: Mitchel Gorecki

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

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

Example of Evaluating Factors Kuo and Kao (2005)

Example of Parameter Weights Kuo and Kao (2005)

Specific Example – Road Configuration Kuo and Kao (2005)

Problem • Most models produce an output given various inputs • In our case the output needs to be an area or location Solution • Employ matrices to create a 3 -dimensional model that can be represented graphically

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

Durham in 1925

Example of Matrix

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

Results 3 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.

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.

Any Questions?