Final answer:
A service organization should select a production technology based on cost, demand, and efficiency, considering the shift towards more labor if machines become costlier. The choice also involves determining the optimal scale of production where economies of scale can reduce per unit cost.
Step-by-step explanation:
The statement that the production-approach is appropriate for service organizations focusing on efficient, low-cost, high-volume operations is typically false. Service organizations often require a more flexible and adaptive approach rather than the standardized, high-volume production associated with a production-oriented approach.
A service organization should choose a production technology that aligns with its service delivery goals. This choice often depends on factors like cost, demand, and efficiency. For instance, when the cost of machines increases, a shift towards using more labor and less capital is often observed, as labor becomes relatively cheaper. This was evident in the United States during the 1970s when there was insufficient demand for all firms to operate at the bottom of the average cost curve, leading to the exit or struggle of some firms.
Once the least costly production technology is identified, the firm must consider the optimal scale of production. This involves analyzing when economies of scale can be achieved—where an increase in output leads to a decrease in the cost per unit, as seen with large retailers like Costco or Walmart.