Weber’s Least Cost Theory
Who?
• Alfred Weber (18681958)
• German Economic
Geographer
• Published Theory of
Location of Industries in
1909.
• “What is the best (most
profitable) location for
manufacturing plants?”
“Just because I’m
old doesn’t mean I
don’t know what I’m
talking about!”
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 major factors that determine
location of manufacturing
• 1. Transportation (most important)
– Raw materials (inputs) to factory
– Finished goods (outputs) to market
– Distance and weight most important factors.
• 2. Labor
– High labor costs reduce profit
– May locate farther from inputs/ market if cheap labor
can make up for added transport costs.
• 3. Agglomeration
– Similar businesses cluster in the same area.
– Businesses support each other, reduce costs
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.
Bulk Reducing Industry
“Material Orientation”
• Inputs weight more that final product.
• Weight is lost during the production process
• Cost of shipping inputs to factory > cost of
shipping outputs to market.
• Therefore, factory is located near raw
materials/ inputs.
• Examples: copper, steel, lumber
Bulk Gaining Industry
“Market Orientation”
• Finished product weighs more than the
inputs.
• Weight is gained during the production
process.
• Cost of shipping outputs to market > cost of
shipping inputs to factory.
• Therefore, factory is located near the market.
• Examples: Automobiles, beverages
Bulk
Reducing
Heavier input, shorter
distance to plant
• Input
Factory
• Input
Lighter output, longer
distance to market, lo
Factory
Market
Market
Lighter input, longer distance to plant.
Bulk Gaining
Heavier output,
shorter distance to market
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)
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)