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Weber’s Least Cost Theory

Weber’s Least Cost Theory. Least Cost Theory. 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.

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Weber’s Least Cost Theory

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  1. Weber’s Least Cost Theory

  2. Least Cost Theory • 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: Transportation, Labor and Agglomeration

  3. Weber ?’s 1) First thoughts that come to mind when hearing this theory? 2) Look at this theory again, but think about how resources like coal are transported from mines to place of use (steel factory, coal power plant)? 3) What costs, besides transportation, go into the extraction of resources like coal?

  4. Least Cost Theory • 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: Transportation, Labor and Agglomeration

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

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

  7. Agglomeration • 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, accounting)

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