Alfred-Weber-Least-Cost-TheoryAlfred-Weber-Least-Cost-Theory.doc

Alfred Weber – German – during 1940’s -Least-Cost Theory – Assumption that owner of plant would try to minimize 3 categories of variable costs: 1) Transportation – most important 2) Labor 3) Agglomeration – phenomenon of spatial clustering or concentration of firms in a relative small area. These share cost of locating there. Thus, costs may go down. Deglomeration occurs when companies and services leave because of the diseconomies of industries’ excessive concentration. Weber concluded – two types of manufacturing industries: 1) Material–oriented 2) Market-oriented Material-oriented – Raw materials really heavy or bulky or perishable – so locate industry near source of raw material. Market-oriented – Processing increases perishability – like bakeries – processing may add bulk or weight – auto industry – weight-gain – so located near market. Material Index = The point of optimal transportation based on costs of distance to the “material index” – the ratio of weight to intermediate products (raw materials) to finished product. Other things to take into account = Cost of land, availability of land, Assume – land may not be available – transportation factor – access to labor market – political border may exist between locations – tariffs, local taxes or government regulation. Absence or presence of environmental constraints may affect this. Linkages between firms may localize manufacturing in areas of industrial agglomeration where common resources – such as skilled labor – or multiple suppliers of product inputs – such as auto component manufacturers are found. These principles are generalized statements about locational tendencies of industries. Their relative weight varies among industries and firms. Significance varies depending on extent to which economic considerations opposed to political or environmental constraints – dictate locational decisions. Raw materials: Only a few industries at early stages of production cycle use raw