Question

4. A magazine, in an article dealing with management, wrote, “When he took over the furniture factory three years ago … [the manager] realized almost immediately that it was throwing away at least $100,000 a year worth of wood scrap. Within a few weeks, he set up a task force of managers and workers to deal with the problem. And within a few months, they reduced the amount of scrap to $7,000 worth [per year].” Was this necessarily an economically efficient move? Explain your answer.

Answer 1

Initially the factory was wasting 100000 dollar worth of wood scrap every year. This was an efficiency loss that the factory was bearing. The manager then hired workers and a task force that reduce to the scrap to $7,000. Because there is a reduction in the amount of waste there seems to be an economically efficient move of setting up a task force and reducing the amount of scrap. Economics is concerned about the judicious utilisation of resources and any decision that reduces the wastage is considered as an economically efficient decision. In this case also there is a reduction in the amount of waste generated so the move is economically efficient or is a move towards economic efficiency. However one should also remember that there was definitely an amount spent on the task force. If the cost borne by the factory is more than the amount of waste reduction, then economic efficiency would be lost