Question

During an assessment, you discovered that the target company was using a fax machine. Which of the following is the least important?

Answer 1

A firm should choose the production technology that ensures the lowest total cost. If machine hours are cheaper, more machines and less labor are favored. If machine costs rise, the firm should pivot towards less capital-intensive methods.

Step-by-step explanation:

When a firm evaluates different production technologies, it should select the one that results in the lowest total cost. If the context suggests that machine hours have become less expensive, then a rational firm would typically opt for a technological setup that utilizes more machinery relative to labor, which is described as production technology 3. This aligns with the concept of substituting capital for labor when capital becomes cheaper.

Conversely, if there is an increase in the cost of machinery, as described in the subsequent scenario, the firm would likely move towards a production technology that relies less on capital and more on labor to minimize cost. In such a case, production technology 2 would be the preferable option because it respects the principle of cost minimization by employing less capital-intensive methods due to the increased cost of machines.