Weber's Least Cost Theory
By Ryan Bui
What is Weber's Least Cost Theory?
1. The first aspect is transportation. This is the most important out of the 3 because it would be the cheapest to bring raw materials in and ship final products out.
2. The second aspect is labor. This is the second most important because if labor is expensive then that will reduce the profit that the factory will make.
3. The third aspect is agglomeration. This is the clustering of industries in an area. This is important because other industries can help each other through the products that other factories make. Which can make factories depend on each other.
Bulk-Reducing And Bulk-Gaining Industries
Where if the cost of transportation of the final product is more than the cost of the transportation of the raw materials then the factory should be moved closer to the consumer rather than the producer and vice versa.
Bulk-Reducing Industries: These are the industries that would locate their factory closer to the producer. An example that the Wood Book gave us is the North American copper industry where they locate their factories closer to the raw materials because it is more difficult to transport than the final product.
Bulk-Gaining Industries- This is pretty much the reverse of the bulk-reducing industries, where factories locate themselves closer to consumer. The example that the wood book gives us is Canned food and beverage products. This is because these types of industries are dependent on the accessibility to the market. Transportation is more expensive to the consumers because of the weight added on to the product.
Other Examples of Bulk-Gaining and Bulk-Reducing Industries
Bulk-Gaining Industry Example: The movie theater industry is a good example because it relies on placing their theaters in the most public places to ensure that they get their product (which I guess would be tickets or their concession stands) gets to the most people possible. You can't have a movie theater where no one is going to visit. The raw materials that they use wouldn't cost that much to transport.