Download A Firm`s Bid Price Curve and the Neo

4.C. C. Mai, “A Firm's Bid Price Curve and the Neo-classical Theory of
Production”, Southern Economic Journal, Vol. 46, No. 3, Jan. 1980, pp.
892-897. (SSCI)
Abstract
Willian Alonso [1], in his famous book Location and Land Use, presented a
general economic theory of urban land market and location. Since its publication,
Alonso's theory has received high praise from city planners and urban economists.
In addition, his general theory has been subsequently revised and extended by
other writers (2; 6; 7; 10; 11; 12). Perhaps the most important component in the
Alonso's model and its extensions is the so-called bid price curve. This curve has
been used extensively as an analytical device in the regional and urban economics
textbooks.' In particular, the bid price curve of urban firms receives the most
attention, when dealing with industrial land use and location. Although Alonso
attempted to derive and interpret this curve precisely, the conceptual background
and character of this curve is unfortunately rather confusing and, as such, requires
a new explanation and development.
The present paper will reexamine Alonso's interpretation and then suggest an
alternative rent-maximization approach. More specifically, in order to remove the
current undeveloped areas (ambiguities), this paper sets forth a formal
mathematical model to more rigorously define the bid price curve as a vehicle for
integrating the neo-classical production theory with location theory. In the process,
the paper will also define and make explicit the constraints under which the theory
of the bid price curve is valid.