Final answer:
It is false that the units-of-production method of depreciation leads to the highest cash flow for a company, as depreciation methods do not directly impact cash flow, but rather affect cash flow indirectly through taxes.
Step-by-step explanation:
The question pertains to the units-of-production method of depreciation and its effect on cash flow for a company. It is false that this method will result in the highest cash flow for a company. Depreciation methods, including the units-of-production method, do not directly affect cash flow since they are simply non-cash expenses that reduce taxable income. Instead, depreciation methods may affect cash flow indirectly through their impact on taxes. When the cost of machines increases, a company might shift toward using more labor as it is relatively less expensive than capital, affecting the choice of production technology and total cost.
In the context of the 1970s situation in the United States, where there was only enough demand for 2.5 firms to be efficient, companies had to carefully consider their production technology and costs. Choosing the right technology, whether it is production technology 2 or production technology 3, could be vital for a firm's survival in the long run. This choice becomes even more critical when machine costs change, prompting a reassessment of the capital-labor balance.