Production Strategy Decision

A firm is deciding which production technology to use in its factories in two different countries. Technology X is labor-intensive, requiring 10 workers and 2 units of capital to produce a set number of goods. Technology Y is capital-intensive, requiring 2 workers and 8 units of capital for the same output. In Country A, wages are $20 per worker and capital costs $5 per unit. In Country B, wages are $5 per worker and capital costs $20 per unit. Based on a model where firms choose the lowest-cost production method, which of the following decisions is most likely?

Evaluating a Model of Technology Adoption

A firm's decision to adopt a new production technology depends on the relative costs of inputs like labor and capital (e.g., machinery, energy). Match each economic scenario with the most likely technological decision the firm will make to minimize its costs.

According to the economic model where firms choose technology based on minimizing input costs, a sudden, significant global decrease in the price of automation machinery would lead all firms to immediately adopt this new labor-saving technology, regardless of their local wage rates.

Explaining Technological Choice

Entrepreneurial Decision-Making in a Global Market

A manufacturing firm initially uses a production technique that relies heavily on manual labor because local wages are low and machinery is expensive. Over time, the economic conditions and available technology change. Based on the economic model of technology adoption, arrange the following events in the logical order that would lead the firm to switch to a new, labor-saving technology.

A company can produce a specific quantity of goods using two different production technologies. Technology A requires 10 workers and 2 units of capital (e.g., machines). Technology B is a more modern, labor-saving alternative, requiring only 3 workers but 7 units of capital. The company's goal is to choose the technology that minimizes its total production cost. Initially, the company uses Technology A because local wages are very low and capital is expensive. Which of the following scenarios would most likely incentivize the company to switch to the labor-saving Technology B?

A technology firm is based in a city where salaries for skilled software engineers are exceptionally high. The firm needs to develop a new complex software product. It has two options: 1) Hire a large team of local engineers, a labor-intensive approach. 2) Invest in a sophisticated AI-powered development platform that automates many coding tasks, requiring a much smaller team of engineers to manage it. The cost of the computing power required to run this AI platform is relatively low. Based on an economic model where firms choose the production method that minimizes costs, which statement best analyzes the firm's likely decision?