2.3.1 Comparative Cost Analysis Comparative cost analysis is a procedure for comparing locational costs for a plant at different sites. The objective of comparative cost studies is to determine in what region(s) the industry could achieve the lowest total cost of producing the required output and delivering it to the market. Such studies frequently reveal that certain component costs do not vary among sites. Comparative cost studies have proven advantageous in some types of industrial developments. When there is a change in the factors of production, new areas may gain economic advantages that attract industry while traditional areas may lose certain of their advantages. A technological change frequently alters locational advantages. Comparative cost analysis is a useful tool when applied to one industry and it is important to use substitution analysis so that the analysis can consider alternative locations. What has been called the "bliss point" location would be one where no further substitutions at another location could result in a cost reduction. Comparative cost analysis is thus within the Weberian framework of least cost analysis. Comparative cost studies assume that the price/cost structure and the market are given. These assumptions are untenable where the totality of a region is analyzed by industry found in a particular region. As a result other types of analysis are superior when the interrelations among industries in a region are to be analyzed. 2.3.2 Input-Output Technique Several significant input-output works have been reviewed for this section.6’7’111 Input-output (1-0) theory is fundamentally concerned with the interrelations arising from production.6 Its major purpose is to measure the magnitude of the flow of goods and services from one level of production to another. The 1-0 method of analysis is thus an attempt to combine economic theory with an empirical approach to the study of production. The basic premise of the 1-0 model is that it is possible to divide all productive activities in an economy into sectors whose interrelations can be expressed in a set of input functions.
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