Final answer:
The question discusses inventory management systems, focusing on the pull approach's responsiveness and flexibility compared to the push approach. Cost changes in capital like machines influence a firm's choice of production technology, aiming for the lowest total cost by balancing capital and labor.
Step-by-step explanation:
The question relates to inventory management strategies, specifically the "Pull" approach versus the "Push" production approach. A pull-based inventory system is driven by actual demand rather than forecasted demand. It would prioritize factors like responsiveness to customer demand, flexibility in production, and the economic production of goods only when there is a need. In contrast, if production is driven by the "Push" approach, inventory is produced based on forecasts or schedules, which can lead to overproduction or waste if demand is overestimated. An increase in the cost of machines would logically lead to a shift in production technology that minimizes reliance on capital-intensive methods and leans more towards labor-intensive ones, potentially aligning with principles of the pull approach if labor provides greater flexibility and cost-effectiveness.
For a firm analyzing its production technology options, selecting the one with the lowest total cost is essential. This determination may vary depending on changes in cost inputs like machine hours or labor rates. For instance, if machine hours become more expensive relative to labor, the firm would likely employ production technology 2 which uses less capital and more labor. Conversely, if machine hours become cheaper, the firm might choose production technology 3, capitalizing on the cost advantage of machine use over human labor.