ocation theory, among other things, attempts to explain and predict the locational decisions of firms, and the spatial patterns of industry which are the products of the aggregate locational decisions. The initial assumption upon which location theory was based was that entrepreneurs attempted to maximize profits in the context of prices fixed by the market, where they possessed perfect information concerning the relative costs associated with all potential locations. Thus, early location theory explained all locational decisions in the context of differences between potential locations with respect to production and transportation costs.
In many models, an assumption was made that production costs were constant over all locations. The location decision problem, thus, was reduced to a minimization of transportation costs. Later models eliminated the assumption of constant production costs, and introduced considerations of multiple markets and resource sources.
Since the mid 1960s, the emphasis in the models has shifted toward the relationship between location and demand. Additionally, the concept of imperfect competition has been introduced into the models. The concept of profit maximization, which is consistent with the traditional interpretation of the theory of the firm, has been retained in the contemporary models.
Careful attention to the business location when a business is being established can contribute significantly to the probable success of the enterprise. Relocation, when an existing location proves to be unproductive, can often save a small business (Connors, 1988).
Over expansion or too rapid expansion can strain both the finances and the control systems of a business organization (Fraser, 1990; Rowland, 1987). Over expansion or too rapid expansion have been cited as underlying reasons for the failure of businesses large and small (Bremmer, 1990; ...