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July 1, 2025 

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LOCATION THEORY: A theoretical framework for studying the location decisions made of firms and households based on transportation cost and spatial differences in the accessibility of inputs and markets for outputs. Location theory, developed with noted contributions from August Losch, Alfred Weber, Johann von Thunen, Walter Christaller, and Walter Isard, explicitly considers the cost of transportation in the production and consumption choices made by firms and households. Location theory has been used to explain urban density, labor migration, and land use.

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RISK PREMIUM: This has two very closely related uses. First, it's what risk averse people are willing to pay to avoid a risky situation. For example, if you would be equally happy with a guaranteed $900 or a 50-50 chance of getting either $500 or $1,500, then you're risk premium is $100. Second, it's the extra percentage points added to an interest rate to compensate for the risk of a loan. As a general rule, each 1 percent chance of default on a loan adds a risk premium of about 1 percent to the interest rate.

     See also | risk | uncertainty | income | insurance | profit | risk loving | risk neutral | risk neutral | risk pooling | entrepreneurship | hedging | financial market | interest rate | bankruptcy | profit |


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RISK PREMIUM, AmosWEB GLOSS*arama, http://www.AmosWEB.com, AmosWEB LLC, 2000-2025. [Accessed: July 1, 2025].


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DISECONOMIES OF SCALE

Increasing long-run average cost that occurs as a firm increases all inputs and expands its scale of production. Diseconomies of scale result from decreasing returns to scale and are graphically illustrated by a positively-sloped long-run average cost curve. Diseconomies of scale usually occur for relatively large levels of production and overwhelm economies of scale that occurs at relatively small production levels. Together, economies of scale and diseconomies of scale create a U-shaped long-run average cost curve.

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Ragnar Frisch and Jan Tinbergen were the 1st Nobel Prize winners in Economics in 1969.
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