Final answer:
Mike should select the machine option that offers the lowest total cost, which may change based on the current cost of machine hours. If machine costs rise, he should shift towards more labor, but if machine costs fall, he should utilize more machines.
Step-by-step explanation:
The question requires evaluating whether Mike should choose lease option 1 or loan option 2 for obtaining a machine, using the context of total cost considerations in production technology. When the cost of machines increases, a firm typically chooses the production technology with the lowest total cost while making a shift towards less capital and more labor. However, if machine hours become cheaper, the firm would logically shift towards more machines and less labor, picking the technology that aligns with this cost efficiency.
Production technology 2 has the lowest total cost when machine costs are high, and production technology 3 becomes the more cost-effective option when machine hours are cheaper. Therefore, Mike's decision should be based on the current cost of machine hours and the total cost associated with each technology.