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In general, businesses need to manage all of their factors of production in a good way if they are to have the lowest possible costs and the highest possible productivity. For a business, mismanaging these sorts of resources would not have an impact that would be much different than the impact of mismanaging a resource like labor or capital.
Businesses have to produce their goods or services as efficiently as possible if they wish to be able to survive in today’s very competitive business environment. Mismanagement leads to higher costs per unit of output. For example, if a business has to use natural gas and convert it into fertilizer for crops, it needs to manage its use of that natural gas as well as possible. If a firm wastes some of the natural gas unnecessarily, it will use more natural gas for every unit of fertilizer than a more efficient firm will. The wasteful firm will be at a competitive disadvantage and will make less profit. It may eventually go out of business.
Firms need to be as efficient as possible in managing all of their resources so that they can have the lowest possible costs per unit of output.
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