Final answer:
The best production method initially is Method 1 with labor at $100/unit and capital at $400/unit. If labor costs rise to $200/unit, Method 1 remains the best approach due to the lowest total cost.
Step-by-step explanation:
The question asks to analyze different production methods for a company given the costs of labor and capital to determine the best production strategy in various economic scenarios.
Firms might adjust their production methods in response to changes in labor costs. Initially, with labor costing $100/unit and capital at $400/unit, we need to calculate the total cost for each method:
- Method 1: 50 units of labor + 10 units of capital = (50 * $100) + (10 * $400) = $9,000
- Method 2: 20 units of labor + 40 units of capital = (20 * $100) + (40 * $400) = $18,000
- Method 3: 10 units of labor + 70 units of capital = (10 * $100) + (70 * $400) = $29,000
Therefore, Method 1 is the best production method initially. However, if labor costs increase to $200/unit, the calculations change:
- Method 1: 50 units of labor + 10 units of capital = (50 * $200) + (10 * $400) = $14,000
- Method 2: 20 units of labor + 40 units of capital = (20 * $200) + (40 * $400) = $18,000
- Method 3: 10 units of labor + 70 units of capital = (10 * $200) + (70 * $400) = $29,000
With the increase in labor cost, Method 1 still remains the most cost-effective approach.