1. Alfred Weber’s Least Cost Theory of Industrial Location
Hyeran Park

2. Alfred Weber Early 20th century German economist.
Born on1868 and died on 1958.
Set out to predict and explain where factories would choose to located and grow.
Studied the locations of agricultural activities.
Published Theory of the Location of Industries in 1909.

3. Least Cost Theory
Predicts where industries would locate based on the places that would be the lowest cost to them.
Industries wanting to locate where transportation costs are minimized must consider two issues: the distance of transportation to the market and the weight of the goods being transported.
Main Idea:
Cost of Transportation
Proximity to Market
Proximity to Raw Materials

4. Principles of Location
Raw materials
Labor supply and cost
Processing costs
Markets
Transportation costs
Government policies
Human behavior

5. Assumptions in Weber’s Model
Transportation cost is determined by the weight of the goods being shipped and the distance they are being shipped and the distance they are being shipped.
The heavier the good and/or the farther the distance, the more expensive it is to ship.
Industries are competitive and aim to minimize their costs and maximize their profits.
Markets are in fixed locations.
Labor exists only in certain places and is not mobile.

6. Break of Bulk/Transshipment Point
A point where there is a need to change mode of transport due to
Physical Reason - Port
Artificial Reason - National Boundaries
Costs rise each time cargo has to be loaded and unloaded
Ship: the cheapest
Rail: next cheapest
Truck, or
Air: most expensive

7. Transportations

8. Different Modes of Transportation

9. Transport Cost/Freight Rate
Structure of transport cost

10. Weber’s Industrial Model
Considering a product of w(M) tons to be sold at market M, w(S1) and w(S2) tons of materials coming respectively from S1 and S2 are necessary. The problem resides in finding an optimal factory location P located at the respective distances of d(M), d(S1) and d(S2).

11. Criticism of Weber’s Model
Weber’s theory does not identify the fact that:
Markets and labor are often mobile.
Labor force varies in…
age, skill sets, gender, language, and other traits.
Some transportation costs, unlike in Weber’s model, are not directly proportional to distance.
Important factors neglected
Profit
Diseconomies
Technology
Institutional and Behavioral Factors

12. Impact of Technology Production Transport Automation
Use less amount of raw materials and/or power
Use of substitutes (raw materials or power)
Transport
Lower freight rate
Refrigeration
Standardization (use of containers)
Automation
Less labor and skilled labor

13. Cited Sources http://www.sjsu.edu/faculty/watkins/weber.htm
ngle.html