Final answer:
To decide the most economical production technology, a firm considers the total cost implication of labor and capital. Technology 2 is chosen with higher machine costs for its lower total cost, and Technology 3 is preferred when machine hours are cheaper to reduce expenses and shift towards more capital-intensive production.
Step-by-step explanation:
In determining the most economically efficient production technology, a business evaluates factors such as labor costs and capital costs. The total cost of each production technique is crucial in making this decision. If there is an increase in the cost of machines, firms are inclined to opt for a technique that uses less capital and more labor, thereby minimizing the total cost. Conversely, if machine hours become cheaper, firms tend to favor a technique that employs more machines and less labor. This concept is illustrated by the fact that when the cost of labor rises, as seen from examples A to B to C, firms will shift towards using more machinery (production technology 3) to reduce costs.
As the information states, if machine hours are more expensive, the firm would choose production technology 2, since it has the least total cost considering the current conditions. On the other hand, with cheaper machine hours, the firm would shift to production technology 3 for its cost efficiency. This decision-making process aligns with the economic principle of substituting towards the less expensive input to optimize production costs.