Final answer:
For producing high-volume products cost-effectively, a firm should use production technology 2 due to its lowest total cost and consider the benefits of economies of scale, which reduce the cost per unit as production quantity increases, up to a certain point where economies of scale do not improve.
Step-by-step explanation:
In determining the most cost-effective production technology for high volume products, a firm should select production technology 2 when it presents the lowest total cost. This becomes particularly important when there is an increase in the costs of capital, such as machinery, which makes a shift towards more labor-intensive production methods more economical.
Additionally, the company needs to evaluate the optimal scale of production. Many industries benefit from economies of scale, were higher quantities of output result in lower costs per unit. To illustrate, production plants larger in scale, like those compared in figures showing economies of scale, demonstrate that larger factories can produce goods, such as toaster ovens, at a lower average cost than smaller factories. Yet, there is a point where increasing the scale further does not reduce the average cost, indicating the end of economies of scale benefits at that production level.