Location theory is concerned with the geographic location of economic activity; it has become an integral part of economic geography, regional science, and spatial economics. Location theory addresses the questions of what economic activities are located where and why. Location theory rests — like microeconomic theory generally — on the assumption that agents act in their own self-interest. Thus firms choose locations that maximize their profits and individuals choose locations that maximize their utility.
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“There never comes a point where a theory can be said to be true. The most that one can claim for any theory is that it has shared the successes of all its rivals and that it has passed at least one test which they have failed.”
—A.J. (Alfred Jules)