KcmcALGeo. Content 1Introduction 2Finding out the least cost location 3Material index 4Cost profile 5Location triangle 6Drawing isodapanes 7Application.

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Presentation transcript:

KcmcALGeo. Content 1Introduction 2Finding out the least cost location 3Material index 4Cost profile 5Location triangle 6Drawing isodapanes 7Application Go to Weber’s model Go to

KcmcALGeo. Weber’s model of industrial location Cost minimization approach

KcmcALGeo. Average cost Price/ revenue BAC Seeking for the least cost location

KcmcALGeo. 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

KcmcALGeo. Assumptions 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.

KcmcALGeo. The three locational factors Transport cost labour cost agglomeration economies

KcmcALGeo. 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

KcmcALGeo. 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

KcmcALGeo. Raw materialmarket Procurement cost Distribution cost Total transport cost Seeking for the least transport cost site Step 1

KcmcALGeo. Groupings of raw materials ubiquitouslocalized puregross

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

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

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

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

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

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

KcmcALGeo. M.I. Equal to 1 No weight-gain nor weight loss industry Footloose location

KcmcALGeo. Total transport cost Procurement cost Distribution cost RM Where is the least cost location ?

KcmcALGeo. Total transport cost procurement cost distribution cost RM Where is the least cost location ?

KcmcALGeo. Total transport cost Procurement cost Distribution cost RM Where is the least cost location ?

KcmcALGeo. Tapering freight structure Distance Transport cost

KcmcALGeo. distance Transport cost Stepped freight rate

KcmcALGeo. distance Transport cost Road Rail Sea Different transport rates

KcmcALGeo. R M Transshipment location Procurement cost Distribution cost Total transport cost Locating at a transshipment point

KcmcALGeo. Summing up 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

KcmcALGeo. RM1RM2 M 50km X 87km Weber’s locational triangle 100km

KcmcALGeo. M RM1 RM2 RM3 (1 unit) (2 units) (3 units) (2 units) * Centre of gravity Using the Varignon frame

KcmcALGeo. * R* M RM (8) (9) (10) (11) Drawing isodapanes Lines of Total transport cost Where is the least cost location?

KcmcALGeo. M Rm2 * * *. L1. L2. T($8) ($?) $9 $10 $11 Labour saving at L1 & L2 is $3 Which is the critical isodapane ?

KcmcALGeo. F1 F1 F2F2.. ($8) $10 $12 ($10) ($12) Which are the critical isodapanes? If F 1 & F 2 locate side by side, production cost declines by $4 Where will F 1 and F 2 be moving to?

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

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

KcmcALGeo. 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.

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

KcmcALGeo. Assumption 4: markets are at fixed points, perfect competition exists. Reality: they exist as an area, monopoly likely occurs.

KcmcALGeo. Assumption 5: industrialists are economic men, profit maximizers. Reality: it is hard for them to have complete knowledge, they tend to be a satisfizer.

KcmcALGeo. 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.