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Weber Least Cost Theory

1.Assumption  Isotropic plain  Four types of resources : ubiquitous,

sporadic, pure and gross  Wages are fixed at any particular location  One market  Uniform transport system  Perfect competition

Weber suggested that manufacturing firms would locate in response to three factors:  Transport cost  Labour cost  Agglomeration economies

II. Least Transport Cost Theory  Procurement cost : cost of transporting

raw material to factory  Distribution cost : transportation cost from factory to the market  Total Transport Cost : P+D

 When Procurement cost > distribution cost

→ material location  When distribution cost > procurement

cost→ market location  When distribution cost & procurement

costs are of equal importance → footloose location

A. One market and one raw material B. One market and two raw materials : Two raw materials required but both do not loose weight (ii) Two raw materials are sporadic (iii) Two raw materials are found at fixed locations, both undergoing weight loss (i)

For two or more raw material :  1. Material Index = weight of localized raw

material / Weight of finished product  >1 →raw material (weight added)  <1 →market (weight reduced)  =1 →footloose (anywhere in between)

Isodapane Method Procedure :   

 

The source of Rw and M is plotted Plot lines of equal transport cost (isotims) around each Rw source and market point Total the sum of isotims at the intersection points. This shows the total transport cost if the factory is located at that point Finally connected the intersection with equal totals through the use of isodapane lines The minimum value isodapane reveal the ideal factory location

III. The effect of labour cost ď&#x192;&#x2DC; Weber also recognized that at some

locations, the labour cost was cheap enough to offset the increase in transport cost from the least cost location

IV. The effect of Agglomeration Economies

ď&#x192;&#x2DC; Industrial firms can lower its total cost of

production by agglomeration themselves at the same locality gaining external economies.

Comment on Weber concept : Merits :  clear analysis on factors affecting

industrial location  Brought forward the concepts “least cost

location”, “ material index”

Demerits : ď&#x192;&#x2DC; Least transport cost theory : transport, raw

material become less important nowadays ď&#x192;&#x2DC; Least labour cost : skills of labours more

important than cost of labour ď&#x192;&#x2DC; Agglomeration of economics : concept

correct but changed to global agglomeration

 Focus mainly on economic factor, ignore

behaviour factor ,people can be satisficers > economic men  Cannot foresee the importance of certain

locational factor : technology, government  Cannot foresee the decline of certain

factor : raw material, transport

weber's location theory  

weber's location theory

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