Final answer:
True, a make-to-order system is ideal when excess inventory carries high costs. Production technology choices should focus on minimizing total costs, shifting towards more machinery with cheaper machine hours, and more labor when machine costs rise.
Step-by-step explanation:
True, a make-to-order system is more suitable if leftover inventory is expensive for the product. This is because a make-to-order system allows a firm to produce goods only when there is a demand, hence reducing or eliminating the costs associated with excess inventory. In contrast, make-to-stock systems can lead to surplus goods that may not be sold, resulting in higher inventory costs.
When choosing production technology, firms should opt for the one with the lowest total cost. For example, if machine hours become cheaper, it would be expected for a firm to shift towards using more machinery and less labor, which is indicated by the selection of production technology 3. Conversely, if the cost of machines goes up, the firm should adapt by selecting a production technology that uses less capital and more labor, such as production technology 2.