Weber’s model of industrial location

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Transcript Weber’s model of industrial location

Weber’s model

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Introduction Finding out the least cost location Material index Cost profile Location triangle Drawing isodapanes Application KcmcALGeo.

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Weber’s model of industrial location

Cost minimization approach

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Seeking for the least cost location Average cost Price/ revenue A B C

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Assumptions

• Presence of an isotropic plain • Natural resources are either ubiquitous or localized • Transport system is uniform • Labour is at fixed points and of different wages • Markets are at fixed points and demand is unlimited

Assumptions

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• Perfect competition exists, the price of a particular goods is identical.

• Industrialists are economic men, trying to minimize their costs or maximize profits.

• Apart from transport cost, labour cost and agglomeration economies, all other factors are not considered.

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The three locational factors

• Transport cost • labour cost • agglomeration economies

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Steps of finding out the least cost location

• Step 1: find out the least transport cost site • Step 2: consider if the production unit will move to a cheaper labour cost site • Step 3: consider if the production unit will move to a site where agglomeration economies are available

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Total transport cost equals to

Cost of moving raw materials to the production unit/

procurement cost Plus

Cost of moving finished products to the market/

distribution cost

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Step 1 Seeking for the least transport cost site

Raw material market

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Groupings of raw materials

ubiquitous localized pure gross

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Method 1 Working out of the material index(MI ) Weight of raw material MI = Weight of finished product

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Material index of sugar milling: 7 tonnes of sugar cane = 1 tonne of raw sugar 7

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Material index of beer manufacturing 10 tonnes of wheat 100 tonnes of beer = 0.1

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Material index of manufacture of cloth: 10 tonnes of yarn 10 tonnes of cloth = 1

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M.I. Greater than 1 Material-oriented Weight-loss industry

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M.I. Small than 1 Weight-gain industry Market oriented

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M.I. Equal to 1

No weight-gain nor weight loss industry

Footloose location

R

Where is the least cost location ?

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M

R KcmcALGeo.

Where is the least cost location

?

Total transport cost M

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Where is the least cost location

?

R M

Tapering freight structure

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Distance

Stepped freight rate

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distance

Different transport rates

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Road Rail Sea distance

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Locating at a transshipment point

Total transport cost R Transshipment location M

Summing up

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• Freight rate varies from goods to goods • Freight rate tends to taper off with increasing distance • Freight rate varies among different transport means • Transshipment point offers additional advantage

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Weber’s locational triangle

M RM1 50km X 50km RM2

RM3 (3 units)

Using the Varignon frame

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(2 units) M RM1 (1 unit) * Centre of gravity RM2 (2 units)

Drawing isodapanes

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Lines of Total transport cost R * R (8) (9) (10) (11)

Where is the least cost location?

M *M

Labour saving at L1 & L2 is $3

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L1 ($?) .

L2 ($?) .

T($8) Rm2 * $9 $10 $11

Which is the critical isodapane ?

* Rm2

If F 1 & F 2 locate side by side, production cost declines by $4

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Where will F 1 and F 2 be moving to?

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F 1 ($8) ($10) ($12) .

F 2 ($8) $10 $12

Which are the critical isodapanes?

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Applicability of Weber’s model To what extent the model represents the reality?

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Assumption 1: an isotrophic plain, uniform physical and human settings Reality: it rarely exists in the real world

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Assumption2: uniform transport system, freight rate is directly proportional to weight and distance of haulage.

Reality: it rarely exists, freight rate tends to taper off with increasing distance.

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Assumption 3: labour is at fixed points and with different rates Reality: labour is more mobile and with different skill levels

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Assumption 4: markets are at fixed points, perfect competition exists.

Reality: they exist as an area, monopoly likely occurs.

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Assumption 5: industrialists are economic men, profit maximizers.

Reality: it is hard for them to have complete knowledge, they tend to be a satisfizer.

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Assumption 6: apart from transport, labour and agglomeration economies, other factors don’t vary spatially.

Reality: land price, government policy, technology and behavioral factors become increasingly significant in industrial location. http://www.yahoo.com/