The Weberian Model Came up with it in 1929 Elements with raw materials Weight losing One localized raw material located at RM raw materials cost Total transport costs TTC are lowest at RM as in primary sector activities as we chop down a log and truck t places it takes money So we want it as close to the market as possible If we are going to transport these the cheapest way possible Do I locate closer to the market or closer to the raw material I want to transport the final product FP Weight gaining Soda pop If we ship raw aluminum and make cans at the plant the FP is steeper the RM is not as steep as weight losing We re going to locate closer to the market and we want to transport the raw material RM Break of Bulk Oriented Raw materials that are being transported typically from across the ocean and the cost of loading and unloading is very high so we don t locate it at the resource or market we refine them at the break of bulk shipping port Weber Today Not as applicable as it once was Transportation costs are declining Transport costs are pretty big 27 for stone clay and glass petroleum is 24 lumber and wood are 18 Brainpower is displacing muscle and machines and transforming natural Break of bulk is now less common because loading and unloading resource isn t as expensive Real world power is evolving Industrial inertia past decision carry weight into the future Companies continues to locate in historic industrial locations even though better locations exist Technique and Sales Consideration Establishing a manufacturing plant in a market economy involves the interdependent decision making criteria of Scale The size of total output and Economic scale economies of scale the reductions in costs associated with the production of output in large quantities Principles of Scale Economies Division of labor Henry Ford teach unskilled labor to do just one thing each Speeds up production Allows use of relatively unskilled labor Requires larger scale and larger labor pool Increasing number of shifts uses capital more efficiently Sclae economies prtrayed as a curve ot Long Run Average Cost LRAC Scale Considerations Veritcal Integration and diversification Vertical integration firm controls more up and down large car companies own iron ore companies to produce their own steel down and their own dealership up Horizontal integration has shifted to this firm controls an increasingly large market share of a given niche in a particular industry oligopolistic Diversification Firm enters a different product market from the one in which it has traditionally been engaged Technique output The particular combination of inputs that are used to produce an Firms can substitute among inputs to minimize their costs machinery for labor Limits to substitution