Question

A factory is trying to decide between two machines that are necessary in their manufacturing facility. Data concerning the two machines are prevented below. If this factory has a minimum

attractive rate of return (MARR) of 15%, which machine should be chosen?

Answer 1

To decide between two production technologies, the factory should select the technology that meets its MARR of 15% and has the lowest total cost, factoring in the changes in machine and labor costs.

Step-by-step explanation:

The student's question involves a decision-making scenario for a factory in regard to choosing between two production technologies, taking into consideration the minimum attractive rate of return (MARR). The factory should aim to choose the machine that aligns with their financial objective of a 15% MARR. Considering that the cost of machines has increased, there is a notion to shift towards a lower capital investment and more labor-intensive production technology if it results in the lowest total cost.

However, if machine hours have become cheaper, it would then make sense for the factory to lean towards technology 3, which allows for more machine use and less labor, assuming it results in the lowest total cost. This mirrors historical shifts in production that occured in the United States during the 1970s where demand constraints led to strategic industry re-alignments.