Industry & Cost
Learning Targets:
• I can identify site and situation factors that influence decisions about
locating industries, including the Weber’s Cost Theory.
• I can identify the primary factors influencing the regional pattern of
economic activities in the United States and the World.
Distribution of Industry
● Three-fourths of the world’s manufacturing is
clustered in three regions:
● Europe
● North America
● China
Factors in locating industry
● Site- where and why a city develops and changes
● Situation factors involve transporting materials
to and from a factory.
•Water
•Railroads
Situation Factors
A firm seeks a location that minimizes the
cost of transporting inputs to the factory and
finished goods to the consumer.
- The farther something is transported the higher the
cost.
- A Manufacturer tries to locates its factory as close as
possible to both the buyers and sellers
Site Factors in Industry
● Site factors result from the unique characteristics
of a location
● The three main site factors are labor, land, and capital
○
○
○
Labor intensive industry-wages and labor are a high
percentage of costs
Land industry-need room for production and access to
goods
Capital-Manufacturers borrow capital or money to
establish new factories
Weber’s 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 Cost Theory- Continued
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:
1. Transportation (most important)
2. Labor
3. Agglomeration
1.Transportation
*Most important in Weber’s theory!
The site chosen must entail the lowest possible cost of
moving raw materials to the factory, and finished products to
the market.
- Weight and distance are the two most important factors
that influence shipping costs.
- The mode of transportation is primarily dictated by the
distance and product value.
Inputs and products are transported in one of four ways:
1. Boat (cargo ships)
2. Railways
3. Truck (semi-trucks)
4. Air (airplanes)
● Every time a good is transported to another transportation mode the cost
goes up
-
A Break-of-bulk point is a location where transfer among
transportation modes is possible (ex: truck to air)
2.Labor
Higher labor costs reduce profits,
so a factory might do better farther from raw materials and
marketplace if cheap labor is available.
Even if it might have a
higher transportation cost,
if the labor is cheap
enough, it is worth it!
3.Agglomeration
When a large number of enterprises cluster
(agglomerate) in the same area (e.g. city)
- As a result, they can provide assistance to each
other through shared talents, services, and
facilities
Putting the Model Together...
Agglomeration
This will move based on
the price of
transportation, labor,
and need for being near
other businesses!
Location of
Plant
Labor
Transportation
Proximity to Markets
● Bulk-gaining industries
○ Something that gains volume or weight during production
•
Ex: Beverages (soda)
● Single-market manufactures
○ Makes products sold primarily in one location
•
Ex: General Motors or Toyota
● Perishable Products
○ Must be located near their markets because they can spoil.
•
Ex: Meat and produce
Central Place Theory
Central Place Theory looks at the location of consumer services
in terms of:
- Market area: Selecting the right location
- Range: Maximum distance people are
willing to travel to use a service
- Threshold: Minimum number of people
needed to support the service