Weber's Least Cost Theory
Hannah Krueger & Nicole Mullan
Weber least cost theory
Weber's Least Cost theory is the theory of trying to reduce the price of owning a factory or business by placing the factory in the best location possible.There are three factors determining the location of the business; transportation, labor and agglomeration. Transportation is important to the business's, as it determines how much it costs to transport materials and how much it costs to distribute said materials. Labor is the second factor, as the business needs to be located where labor is cheap so that the company may make more of a profit off of the product. Agglomeration, or the clustering of industries in an area, is the third factor. Businesses benefit from being in agglomerations, because they can assist each other by bringing services and products to the business's, making them more attractive for their own customers.
Bulk-Reducing and Bulk-Gaining
The farther something has to be carried, the higher the cost, so a manufacturer tries to locate factories close to both buyers and sellers. Bulk reducing industries usually locate factories close to raw materials because the raw materials are usually heavier and bulkier than the finished products. These locations also frequently change as resources change. Bulk gaining industries, however, are located by accessibility to the market. For this type of industry, the products are heavier so it is more advantageous to be located near the buyers of their product.