Was this necessarily an economically efficient move?

in an article dealing with management wrote When he took over the furniture factor Show more Business Week 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 $100000 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 $7000 worth [per year]. Was this necessarily an economically efficient move? a. Not necessarily. There are opportunity costs to reduce scrap. The manager may for example have spent $94000 (e.g. lost time for the task force when they could have been working) to reduce the scrap by the $93000 that he did. b. Yes. Even if it is scrap the wood still retains value (as evidenced by the ability to quantify it at $100000 or $7000). The scrap wood could be reused or resold so it is in the companys best interest to reduce scrap as much as possible ideally to zero. c. Not necessarily. The fact that it is scrap wood implies that it is not useful for the companys purposes i.e. making furniture. It is presumptuous to associate a value of $100000 or $7000 to the scrap since there is no market for it and thus no market value can be assigned. There is no rational way to calculate the optimal amount of scrap wood. d. Not necessarily. The manager did not go far enough. The most economically efficient outcome would be to reduce scrap altogether. Even at the reduced amount the company is literally throwing away $7000 per year when it could recoup that amount with greater diligence. Show less

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