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Weber's Least Cost Theory: Three Cost Categories for Optimal Industrial Location, Slides of Human Geography

Alfred weber's least cost theory is a human geography concept that explains the location of a manufacturing plant based on minimizing three categories of cost: transportation, labor, and agglomeration. Weber believed that the lowest transportation cost, especially for raw materials and finished products, is the most important factor. Weber's theory, its implications, and how it can be applied to real-life scenarios, such as deciding the location for a new brewery or steel factory.

What you will learn

  • How does the concept of distance decay relate to the friction of distance in Weber's Least Cost Theory?
  • What are the three categories of cost that decision makers consider according to Alfred Weber's Least Cost Theory?
  • What factors does Alfred Weber's Least Cost Theory account for in determining the location of manufacturing plants?

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Name: ___________________________________________ Period: ________ Date: _________
Unit
Weber’s Least Cost Theory
Human Geography
7
Alfred Weber (1868-1958) formulated a theory of industrial location in which an industry is located where it can
minimize its costs, and therefore maximize its profits. Weber’s least cost theory accounted for the location of a
manufacturing plant in terms of the owner’s desire to minimize THREE categories of cost:
1) Transportation: the site chosen
must entail the lowest possible cost
of A) moving raw materials to the
factory, and B) finished products to
the market. This, according to
Weber, is the most important.
2) Labor: higher labor costs reduce
profits, so a factory might do better
farther from raw materials and
markets if cheap labor is available
(e.g. China today)
3) Agglomeration: when a large number
of enterprises cluster (agglomerate) in the
same area (e.g. city), they can provide
assistance to each other through shared
talents, services, and facilities (e.g.
manufacturing plants need office furniture)
Figures 1-3 show the weight-losing case, in which the weight of the final product is less than the weight of the raw
material going into making the product. In Figure 1, the processing plant is located somewhere between the source and
the market. The increase in transport cost to the left of the processing plant is the cost of transporting the raw material
from its source. The rise in the transportation cost to the right of the processing plant is the cost of transporting the final
product. Note the line on the left of the processing plant has a steeper slope than the one on the right.
The weight gaining case is illustrated in Figures 4- 6, where the final product is heavier than the raw materials that
require transport. Usually this is a case of some ubiquitous (available everywhere) raw material such as water being
incorporated into the product. The optimal location of the processing plant in this case is at the market. Weber
established that firms producing goods less bulky than the raw materials used in their production would settle near to
the raw-material source. Firms producing heavier goods would settle near their market. The firm minimizes the weight
it has to transport and, thus, its transport costs.
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Name: ___________________________________________ Period: ________ Date: _________

Unit

Weber’s Least Cost Theory Human Geography

Alfred Weber (1868-1958) formulated a theory of industrial location in which an industry is located where it can minimize its costs, and therefore maximize its profits. Weber’s least cost theory accounted for the location of a manufacturing plant in terms of the owner’s desire to minimize THREE categories of cost:

1) Transportation: the site chosen must entail the lowest possible cost of A) moving raw materials to the factory, and B) finished products to the market. This, according to Weber, is the most important.

2) Labor: higher labor costs reduce profits, so a factory might do better farther from raw materials and markets if cheap labor is available (e.g. China – today)

3) Agglomeration: when a large number of enterprises cluster (agglomerate) in the same area (e.g. city), they can provide assistance to each other through shared talents, services, and facilities (e.g. manufacturing plants need office furniture)

Figures 1-3 show the weight-losing case, in which the weight of the final product is less than the weight of the raw material going into making the product. In Figure 1, the processing plant is located somewhere between the source and the market. The increase in transport cost to the left of the processing plant is the cost of transporting the raw material from its source. The rise in the transportation cost to the right of the processing plant is the cost of transporting the final product. Note the line on the left of the processing plant has a steeper slope than the one on the right.

The weight gaining case is illustrated in Figures 4- 6, where the final product is heavier than the raw materials that require transport. Usually this is a case of some ubiquitous (available everywhere) raw material such as water being incorporated into the product. The optimal location of the processing plant in this case is at the market. Weber established that firms producing goods less bulky than the raw materials used in their production would settle near to the raw-material source. Firms producing heavier goods would settle near their market. The firm minimizes the weight it has to transport and, thus, its transport costs.

Industrial Location Assignment

Directions: Read Chapter 12 and answer the following questions. Type or write clearly on a separate sheet of paper.

  1. List THREE variable costs that decision makers take into account when calculating efforts to maximize advantages.
  2. What does friction of distance refer to? How is the concept of distance decay related to this?
  3. According to Alfred Weber’s Least Cost Theory, what accounts for the location of manufacturing plants?
  4. Now put Weber's theory to work in deciding where to locate a new brewery. Here's the scenario:

Material (per case) Rail Transport Cost Road Transport Cost Hops & Grain $.10/mile $.11/mile Spring Water $.05/mile $.03/mile Bottled Beer $.25/mile $.27/mile

According to Weber, where will you locate the new brewery and why?

  1. Now put Weber's theory to work in deciding where to locate a new steel factory for a growing town. Here's the scenario:

Material (per case) Rail Transport Cost Road Transport Cost Iron Ore $.40/mile $.44/mile Coal $.35/mile $.35/mile Steel $.30/mile $.33/mile

According to Weber, where will you locate the new steel factory and why?

  1. These scenarios only refer only to transportation costs. They do not adequately account for variations over time. For example, when relative labor costs decline, or when land rent goes down, an industry can sustain an increase in transportation costs – this is referred to as the substitution principle. Discuss TWO other variables not mentioned by Weber that would affect the location of a factory.

Booming Town

Iron Ore Coal