WEBER’S LEAST COST
THEORY
ACTIVITY DAY
ACTIVITY INSTRUCTIONS
1. First, Review the powerpoint.
2. Read the following article:
http://flowingdata.com/2010/04/07/watching-thegrowth-of-walmart-now-with-100-more-sams-club/
3. Watch Video:
http://projects.flowingdata.com/walmart/
4. Application Activity (at end of pwr pt)
•
Least Cost Theory (1909)
– Alfred Weber’s model – owners of
manufacturing plants seek to minimize
three costs:
– 1) Transportation, and
– 2) labor
–
•
Least Cost Theory (1909)
– Weight-losing case: final product weighs
less than raw materials; location = source
– Copper industry: only 0.7% of mined is
copper, rest is waste (gangue)
•
•
Then concentration process (crush, grind, mix, filter,
dry) results are about 25% copper
Then smelting to reduce impurities
– Bulk-reducing industry (steel is too)
– Where should the concentration plant be
in relation to the mine and the customer?
THE LOCATION DECISION
Weber's model: the “least cost theory”
•
Minimization of three critical expenses
1.
2.
3.
Transportation costs
Labor costs
Agglomeration (clustering of like services)
OTHER LOCATION MODELS
Weber’s Model
Manufacturing plants will
locate where costs are
Hotelling’s Model
the least (least cost
Location of an industry
theory)
cannot be understood
Theory:
without reference to
other industries of the
Least Cost Theory
same kind.
Costs: Transportation,
Theory:
Labor, Agglomeration
Locational
interdependence
Losch’s Model
Manufacturing plants
choose locations where
they can maximize profit.
Theory:
Zone of Profitability
HOTELLING’S MODEL EXPLAINED
• Harold Hotelling (1895-1973)
• Locational Interdepedence
• Originally locate near customers – but will gravitate to
each other to maximize profits
• The costs for some customers will be greater if the 2
sellers cluster – further to walk. Also fewer customers
aware of service. But can’t move for fear of losing
customers.
FACTORS OF INDUSTRIAL LOCATION
Maquiladoras: factory across the border in Mexico
SEZ: Special economic zone (like SE China)
-NAFTA Highway, favorable trade conditions, no
import tariffs
-cheap labor
-Clustering
• Political stability
• Taxation policies
• Environmental conditions
FOOTLOOSE INDUSTRIES
• Can locate anywhere, owners can choose an
inferior place to maximize profits
-pick a place to ensure survival of the firm
-small firm, may pick for personal reasons
LOCAL AND CITY GOV’T PROVIDE
INCENTIVES TO LOCATE INDUSTRIES THERE
• 1. grants
• 2. low-cost loans
• 3. tax breaks
http://projects.flowingdata.com/walmart/
EXPLANATION OF ACTIVITY
“Today we are going to see how geography is used in
the real world. More specifically, the world of business.
The Wal-mart Stores Incorporation has contacted me.
They need our help in determining where to put the
next Walmart or Sam’s Club. What that means is you
are now a part of the team. You will be working in
teams of 3–4 people to determine where to put the
next store. It is your job to present and sell me on your
location. I will then read over the proposals to see
which location is the best. Only one or two teams will
win and receive ‘bonuses’ (extra credit points) should
their location be selected.
APPLICATION
OBJECTIVES
1.
2.
3.
4.
Students will be able to demonstrate their
ability to read and interpret highway
road maps, city-zoning maps and aerial
maps such as those found on Google
Earth.
Students will be able to identify small and
large-scale maps correctly.
Students will use the concept of Least
Cost Theory to ensure that the location of
the proposed Sam’s/Walmart will be
profitable.
Students will demonstrate their ability to
use the information acquired from these
maps to determine a logical place for a
new Wally’s World (aka Walmart) within
the greater Orlando area.
ACTIVITY
1.
2.
3.
STUDENTS will be divided into groups
of 3-4 students.
Students will use Google Earth to
determine where current Walmart
and Sam’s stores are located.
Students will narrow them narrow
down their potential locations to two
or three places. Students have the
opportunity to choose betweensuggestions include Lake Nona,
Winter Springs, Oviedo, Winter Park,
St. Cloud, Kissimmee, Lake Mary,
Windermere, Meadowood, and
Southport
Upon completion of research,
students will write a hypothetical
proposal to Walmart CEO/Board;
proposing why they chose the
specific location.