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 Two raw materials are sporadic Two raw materials are found at fixed locations, both undergoing weight loss

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 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 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 : Least transport cost theory : transport, raw material become less important nowadays Least labour cost : skills of labours more important than cost of labour 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