1.What to Produce? : Resources (land, labor, capital, entrepreneurship) are scarce or limited. We cannot have everything; we must make choices. Which ones are best? For allocation efficiency we should choose the combination of goods and services that creates the most value or utility.
2.How to Produce? :In context of this it is: ‘which techniques are to be adopted’? Technology means the correct proportion in which the different factors of production are to be employed. There are two types of techniques. A labor-intensive technique would employ relatively more labor and less capital. On the other hand, capital- intensive technique means more capital and less labor.
3.For whom to Produce?: The solution of this problem is very simple commodity can be consumed only by people who have more purchasing power. Thus, when the price of every commodity and every factor of production are determined, the third problem will be solved.
