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.

Bulk-Reducing Industry

The U.S. Steel industry is one example of a bulk-reducing industry. The steel industry has placed plants and factories around the raw materials that they are seeking. Where deposits of minerals are, factories will be also. When resources start running out, the factories will follow the resources to where they are abundant. Because of this, the steel industry has favorites all over the country, and will keep placing new plants as the resources run out. The production of canned fruits and vegetables are also an example of a bulk-reducing industry. The fruits and vegetables are produced in fields in large quantities, which can lead to an expensive shipment. Factories for canning and packaging are located near the plains where they are grown to reduce the cost of transport, making them bulk-reducing industries. Both the steel industry and the fruit/vegetable canning industries follow Weber's least cost theory, because since they are bulk-reducing, they are trying to reduce the cost of production by placing factories near the production sites. This keeps costs low so that the most amount of profit can be made from the products.

Bulk-Gaining Industry

Cars are much more difficult to ship out of manufacturing than the parts coming into the factory because they have been built and assembled. They weigh a lot more than the individual parts so they cost more to transport. In order to cut down on cost, it is more efficient for automobile plants to be located near metropolitan areas. Another example is stairs and handrails for building. Once they are welded together and sand blasted, the handrails are long and stairs take up a lot of room. This makes the transportation from the factory to the site of use much more expensive than the parts to the factory. This causes these manufacturers to want to locate their factories close to the the buyer of their product.