Applications of Weber Ø Ubiquities ØPure Raw Materials

Applications of Weber Ø Ubiquities ØPure Raw Materials Ø Weight Losing Raw Materials Weber Location Model 1

Weber's Industrial Location Model EMPHASIZES SITUATION Basically Raw Materials and Market are at fixed locations in Space; find the best place to locate the Processing/Industrial Plant Weber Location Model 2

Alfred Weber: Theory of the Location of Industries, 1909 By David Fearon http: //www. csiss. org/classics/content/51 Alfred Weber (1868 -1958), like his older brother Max Weber, started his academic career in Germany as an economist, then became a sociologist. While schooled at a time when European economics was emphasizing historical analysis, Weber was among those reintroducing theory and causal models to the field. He is best remembered, particularly in economics, regional science and operations research, for early models of industrial location (discussed below). . . Weber Location Model 3

Alfred Weber With the publication of Über den Standort der Industrie (Theory of the Location of Industries) in 1909, Alfred Weber put forth the first developed general theory of industrial location. His model took into account: l l l several spatial factors for finding the optimal location and minimal cost for manufacturing plants. Weber Location Model 4

Alfred Weber also applied the model to service organizations such as investment firms, and more broadly to certain political and cultural systems. The problem of locating industry was particularly relevant at the end of the 19 th century, when the industrial revolution was well established, and development of rail transport, energy, telecommunications and urban growth provided more options for distributing firms and components of the manufacturing process. Weber Location Model 5

Aside about Modeling Ø If simple models work we can make more complex ones Ø Simple models require a simplified world l This means assumptions Ø If you don’t like the assumptions then you can change them and make new ones Ø The good thing about Weber’s model is you can learn to use it in about 10 minutes Weber Location Model 6

Weber's Industrial Location Model EMPHASIZES SITUATION (transportation) ASSUMPTIONS Ø Numerous competitive single plant firms Ø All have same technology (production possibility curve) Ø Transport cost linear function of distance (isotropic plane) Ø Choose optimal location in no risk situation Ø Infinite demand at fixed price (what kind of elasticity? ) l l l Ø None sold at higher price, likewise lower price doesn't increase sales Implies no scale economies, only spatial economies Allows for Super Profits since difference of assembly allows for different returns to capital at different locations Sell all output at the MARKET CENTER (No transport cost to the consumer’s house – think of Walmart) Weber Location Model 7

Example Of Infinite Demand at Fixed Price Supply Demand The thought here is that every supplier builds the most efficient sized plant thus supply curves don’t shift. Weber Location Model 8

Abbreviations Ø FP – cost of transporting the Final Product to the Market Place Ø RM – cost of transporting the Raw Material up to the processing plant (somewhere between the “mine” and the Market Ø TTC – total transportation cost based on the location of the processing plant the total transportation cost to get the final output to the market Weber Location Model 9

Terms to define Ø Raw materials - two types based on Location l ubiquitous raw material • Available almost everywhere • Air, Water, Land… l localized raw material • Available in very few locations • Gold, oil, research university Weber Location Model 10

Terms to define Ø Raw materials - two types based on Transportation l l pure raw materials (bulk neutral) -- ex. Water, Natural Gas gross raw materials (bulk loosing) -- ex. gold ore Gold Ore Pure Gold Weber Location Model 11

Terms to define Ø Finished product l l bulk loosing – freeze dried blue berries -- almost weightless bulk gaining – automobile after assembling all parts http: //www. blueberry. org/newproductshowcase 01. htm http: //www. infovisual. info/05/002_en. html Weber Location Model 12

Basic model -- TRANSPORTATION RULES!!! -- minimize total transportation cost • RM - raw material trans cost • FP - finished product trans cost • TTC - total trans cost Weber Location Model 13

Ubiquities Most Applicable to Traditional societies -- Firewood in a forested region -- Cut the trees close by first, as deforest an move further out price increases based on transportation Example – Village Nepalese providing wood for their own cooking Weber Location Model 14

FP – Final Product Delivery Cost Important things to note • If the FP (final good) is produced at the Market, then there is no (ZERO) transportation cost to get it to the market. • If the final good is produced at a distance from the market (i. e. outside of town) then both FP and TTC equally increase with distance from market Weber Location Model 15

One Pure Raw Material Example Filtered City Water for City of London -Place filtration system anywhere between the water source and the water main entering the city - No difference in the quantity of water and therefore the cost of transporting it into the city Weber Location Model 16

One Pure Raw Material Note that: RM transportation cost increases left to right FP transportation cost increases right to left (opposite) RM + FP = TTC Total Transportation Cost to get a final output the market is the addition of the cost of moving the raw material to the processing plant and the final output from the plant to the market TTC represents the total transportation cost for location a processing plant at a point somewhere between the “mine” and the market. Always look for lowest TTC Weber Location Model 17

One Pure + Ubiquities Example: Soft Drink Manufacture -- sugar & flavor plus water -- note the attraction to the market place Weber Location Model 18

“Sugar Water” at Market Weber Location Model 19

Two Pure Raw Materials Example: French Fries - Potatoes from one region - Vegetable oil from a different one - Combined at your local fast food franchise Weber Location Model 20

Two Raw + Ubiquities Can you think of an example for this diagram? Weber Location Model 21

One Weight Losing Raw Material The Metal Mining industry is the perfect example here where hammer mills or other processing plants are located next to the mine. Weber Location Model 22

Copper Ore – Weight Losing Weber Location Model 23

Weight Losing + Ubiquities Best location depends on weight lost in processing versus weight gained from Ubiquity. Weber Location Model 24

Early analog “computer” Best location dependent on multiple inputs and a single final market Weber Location Model 25

Two Dimensional Space – Cost Curve: Solution For Two Raw Materials Weber Location Model 26

Your task Ø Determine lowest cost production center for Steel manufacturing in early 20 th century USA Ø In groups fill-in work sheet Weber Location Model 27

EXTENSIONS OF WEBER'S MODEL 1. Space-Cost Curves -- basically the economic "topography" of the landscape enabling multiple factors to find lowest cost ("valleys") production -- ISODOPANES Weber Location Model 28

EXTENSIONS OF WEBER'S MODEL 2. Smith extension -- Margins of Profitability - optimal regions for production rather than point -- follows argument similar to von Thunen where farmers can grow same crop at many points but rent captures and super profit Weber Location Model 29

EXTENSIONS OF WEBER'S MODEL 3. Distortions of isotropic surface -- real world provides additional constraints and opportunities for activities examples include zoning, business friendly atmosphere, industrial inertia (desire of Midwest to maintain an aging industrial structure that belongs in the Third World), . . . Weber Location Model 30

Diminished importance of Weber's Model -- three reasons (1) Freight rates increase relatively more rapidly on finished products than raw materials ($50, 000 autos versus iron ore) – favors markets (2) Transportation cost decline as part of total cost – allows for “footloose” industries (locate practically anywhere) (3) Brainpower and the internet replaces muscle and machines ? How might we investigate Japan in regards to these points as opposed to American industry? What might this say about Boeing in the near future? Weber Location Model 31