Question

Suppose the cost of machines increases to $\backslash (55$, while the cost of labor stays at $\backslash )45$. How would that affect the total cost of the three methods? Which method should the firm choose now?

Short answer

	Labor Cost	Machine Cost	Total Cost
Cost of technology $1$	$10\times \$40=\$400$	$2\times \$55=\$110$	$\$510$
Cost of technology $2$	$7\times \$40=\$280$	$4\times \$55=\$220$	$\$500$
Cost of technology$3$	$3\times \$40=120$	$7\times \$55=\$385$	$\$505$

The firm will choose production technology $2$because production technology $2$has the minimum total cost among the three.

Step-by-step solution

Step 1. Given information

Production technology $1$	$10$ workers	$2$machines
Production technology$2$	$7$workers	$4$machines
Production technology $3$	$3$workers	$7$machines

The cost of labor is $\$40$and the cost of a machine is $\$55$.

Step 2. The total cost of the three methods

	Labor Cost	Machine Cost	Total Cost
Cost of technology $1$	$10\times \$40=\$400$	$2\times \$55=\$110$	$\$510$
Cost of technology $2$	$7\times \$40=\$280$	$4\times \$55=\$220$	$\$500$
Cost of technology $3$	$3\times \$40=\$120$	$7\times \$55=\$385$	$\$505$

Step 3. Which method should the firm choose now?

Since the firm will choose the method of production that costs the least among all the three, the firm will choose production technology $2$because production technology $2$has the minimum total cost among the three (from the table).