Dynamic Locational Phases of Economic Activity in the Globalized World by Toshiharu Ishikawa

Author:Toshiharu Ishikawa
Language: eng
Format: epub
Publisher: Springer Singapore, Singapore

(5.12)

Because the market price of the final good, p, is a function of the quantity Q as shown by Eq. (5.9), the optimal quantity supplied at the market to maximize the profit of factory 2 can be derived by using Eq. (5.12). The optimal supply quantity is given by Eq. (5.13):

(5.13)

As the supply quantity Q is a function of the transfer price, mp, then the profit of factory 2 is also represented as a function of the transfer price as Eq. (5.14):

(5.14)

Eventually, summing up the profits of factory 1 and 2, the firm’s profit, Y, can be obtained as Eq. (5.15). The firm’s profit is a function of the transfer price, mp, and the location site, (x, y), of factory 1:

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