The basic principle underlying location of industry is the tendency for production of a commodity to be located on the basis of______

Analyze the question The question asks about the basic principle behind where firms and industries choose to set up. It is a question on the location of industry in Economics.

Explain the concept Firms are profit-seeking. When choosing where to locate, they compare the costs of setting up and operating in different places against the benefits they would get there. Factors that influence this include:

• Nearness to raw materials
• Nearness to the market
• Availability of labour
• Power supply, water and transport facilities
• Government policy (incentives, tax holidays, industrial estates)
• Land cost and climate

All of these factors reduce to one principle: a firm locates where its production costs are lowest relative to the benefits (revenue) it can earn. This is the principle of comparative or relative advantage in costs and benefits.

Step-by-step solution

• A. Division of labour - This is about breaking a production process into specialised tasks. It explains efficiency within production, not where to locate. ❌
• B. Employment trends - Labour availability is one factor among many, not the underlying principle. ❌
• C. Relative costs and benefits - This covers every location factor (raw materials, transport, labour, market, power) under one principle: the firm picks the site that gives the best balance of cost and benefit. ✅
• D. Immobility of skilled labour - This is a labour market feature that may influence location slightly, but it is not the basic principle. ❌

Answer: The correct option is C. relative costs and benefits.

Exam tip: When a question asks for the "basic principle" or "underlying reason" behind a business decision in Economics, look for the option that is broad and cost-and-benefit based. Specific factors like labour or raw materials are only parts of the bigger picture. Remember: "Firms locate where profit is greatest, which means where cost is lowest relative to benefit."