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A magazine, in an article dealing with management, wrote, "When he took over the furniture factory three years ago
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.
Expert Solution
Although this is a substantially significant maneuver for the factory this is not a true efficiency point. The manager reduced the scrap by $93,000 worth of wood so the factory is headed towards efficiency. However economic efficiency is a point where nothing can be improved and any further allocation of resources does not increase social or firm welfare. This move is causing the factory to head towards efficiency but there might be other maneuvers that this one contradicts that could actually put the factory at efficiency so the factory is not actually at efficiency it is headed there.
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