Page 115 - DMGT310_ENTREPRENEURSHIP_AND_SMALL_BUSINESS_MANAGEMENT

Entrepreneurship and Small Business Management

Notes 3. There are fixed locations of labor where wage rates are fixed and labor is immobile and
unlimited (capitalists love that).
4. The area has a uniform culture, climate and political system.

5. Entrepreneurs minimize costs of production.
6. Perfect competition exists.
7. Costs of land, structures, equipment and capital do not vary regionally.
8. There is a uniform system of transport over a flat surface.

8.1.2 Raw Material or Market Site

In the first instance we consider whether to locate an industry in the raw material or market
location. If there is no weight loss or weight gain in production, you can site your factory at
either location, because the transport costs are the same each way.

Did u know? Transport costs are not identical for raw material and manufactured goods
and thus, a relative weight must be calculated.
Weber did this with a material index, whereby the relative weight gain or loss is calculated.

Total weight of the finished product
Total weight of materials used to manufacture

Task Visit a small manufacturing organization and compare the weights of raw
material and finished product.

8.1.3 Material Index

If the product is a pure material its index will be 1. If the index is less than 1 the final product has
gain weight in manufacture, thus favoring production at the market place. The weight gain is
most likely to come from the addition of ubiquitous materials, like water, that we can expect to
occur anywhere. Such a product would be a drink, soft drinks or beer, where a small quantity of
usually dried materials are added to water and bottles to make a much heavier and more fragile
final product.

Did u know? Most products lose weight in manufacture, such as a metal being extracted
from an ore. Thus their material index will be more than 1, thus favoring the raw material
site.

The significance of the material index is in calculating precisely the difference between the unit
transport costs of raw materials and finished products. The number of the index is used to
calculate a relative weighting, which is then applied to the spacing/radius of the isotims. The
locational triangles on the handout are small examples of the weighting of more than one
material.
While the drawing of isotims and isodapanes is very straightforward for 2 sites, it is in adding
a number of material sites and markets that the spatial model both increases in complexity and
begins to provide a useful method for calculating the least cost location.

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