Final answer:
Hamilton Company should switch to production technology 2 after the cost of machines increased, making it the method with the lowest total cost compared to the other options.The correct option is 2.
Step-by-step explanation:
When deciding whether Hamilton Company should continue using the old equipment, replace the old equipment with new equipment, sell the old equipment and purchase different equipment, or if the decision cannot be determined with the given information, it is essential to analyze the total costs associated with each option. Based on the provided details, the firm should consistently select the production technology that results in the lowest total cost. Initially, production technology 3 was the most cost-effective option, as it leveraged more machines and less labor, aligning with the situation of 'cheaper machine hours'.
However, the scenario changed when the cost of machines increased to $55 while the cost of labor remained at $40. This increase would impact the total cost calculation for each production method. In light of the new costs, the firm should now choose production technology 2, which has become the lowest cost option as it utilizes less capital-intensive equipment and more labor, a shift due to the relative increase in the cost of machines.
Thus, having analyzed the changing costs and their effects on total production cost, the correct option for Hamilton Company would be to choose production technology 2 over the other options provided.