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Industry Location

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Political Science

Lecture 3 Industry Loation1Traditional cost minimisationWeber Alfred 1909 viewed industrial location decision as optimisation processes Assumptions of Webers analysis1 singleplant firm searches for an optimal location2 raw materials are used to produce 1 productTechnologicalspatial conditions do not differ between placesDemand is the same wherever the plant is locatedOnly variable with an impact are the transportation costsaStep 1 only transportation costs are variableSearch for a location that minimises transportation costsIt is to be found within the socalled location triangleLocation decision depends on the characteristics of raw materialsUbiquitiesraw materials that are virtually available everywhere at the same cost Siliconeis found in a certain place but costs almost nothing to shipLocalised materials pure vs gross localised materials coal iron ore gold etc Gross localised materials coal iron ore that are found in the extraction process a lot of weight is being lost the core thats needed is only a small portion of what you have Means you want to process these products where you find them rather than to ship all the heavy material to another place at huge cost Pure those where basically in the production process there is no weight loss If both products are ubiquities the best point of production would be the point of consumption Same if both products are pure When Weber came up with this the iron industry was really dominant the chemical industry was just in the process of taking off 1Traditional cost minimisationbStep 2 introducing spatially variable labour costsWeber constructs lines of equal transportation costs around each raw material locationsThe question is when you relocate are the additional transportation costs be made up by savings on labour costs His model assumes that there are roads everywhere and no borders to cross and everything runs smoothly So it doesnt really tell us much For ex the border between the eastern bloc countries and western Europe there may be towns that are a couple miles away but cant work together for political reasons Weber decided it might be beneficial to firms to locate close together Imagine there are 3 firms with optimal locations in very different places but these locations might benefit if they all locate close because they negotiate
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