Economies of scale- are the cost advantages that a firm obtains due to expansion. Diseconomies of scale are the opposite. Economies of scale may be utilized by any size firm expanding its scale of operation. The common ones are purchasing managerial, financial and marketing. Each of these factors reduces the long average cost (LRAC) of production by shifting the short-run average total cost curve down and to the right.
The local labour force- The labor force is the number of people employed and unemployed. Participation rate is the ratio between the labor force and the overall size of their cohort. In the West during the latter half of the 20th century, the labor force participation rate increased significantly, largely due to the increasing number of women entering the workplace.
Local employment levels- local unemployment rate may play a part in the decision where to locate. Uk currently has one of the lowest unemployment rates in Europe. However, unemployment is not evenly spread and some parts of the country have high levels of unemployment like Northern Ireland, parts of west Cornwell and the north-east of England.
Wage and salary levels- for some firms wages account for a significant proportion of their total cost so a business may decide to locate in an area of relatively low wages, Wage in south-east of England tend to be higher then in south Wales. These areas tend also to be areas of above average unemployment as workers are keen to find work and are prepared to accept lower wages.
Nearness to customers- There are a limit to how far customers will travel to buy fish and chips even if they are excellent quality. Fish and chip shops will need to be situated in area where plenty of local customers are. Debenhams will only consider locating a new store in an area of relatively high population.
Nearness to suppliers- for some businesses near suppliers of key raw materials and components may be the main factory where to locate. Over the years a wide range of suppliers have grown up in area such as companies supplying electrical fittings and other important components. Up until 1979 the uk imported all of its crude oil.
Historical reasons for location- In an area a business may be reluctant to reluctant to relocate, with all the expense and upheaval that this involves. During the 18th and 19th centuries a large number of pottery and earthenware business set up in the area because of the availability of suitable fireclay.
Demographic change- Over the thirty years some parts of the country have experienced increases in population as people move into the area in search of work. These demographic changes will have a significant impact on local the business.
