The problem of "how to produce" in any economy is solved by

Step 1: Analyze the question The question asks how an economy solves the basic problem of "how to produce." This is one of the fundamental economic questions (alongside what to produce and for whom to produce).

Step 2: Explain the concept "How to produce" is about choosing the technique or method of production. Every economy has scarce resources, so it must pick the combination of inputs (land, labour, capital, entrepreneurship) that gets the job done efficiently. The choice is usually between:

• Labour-intensive methods (more workers, fewer machines)
• Capital-intensive methods (more machines, fewer workers)

The deciding principle is cost efficiency. Producers choose the method that yields the desired output at the lowest possible cost, which is called the least cost method of production. It depends on the relative prices and availability of factors. For example, a country with abundant cheap labour (like Nigeria) may find labour-intensive methods cheaper in some industries, while capital-intensive methods may be cheaper in others.

Step 3: Evaluate the options

• A. Combining capital and labour intensive methods: Sometimes this happens, but it is not the principle that settles the question. The mix itself is decided by cost.
• B. Adopting the least cost method of production: This is the guiding criterion for choosing a technique. ✔
• C. Using capital intensive method: This is only one possible technique, and it is not always the cheapest or most suitable.
• D. Employing the services of a manager: A manager supervises production but does not determine the choice of technique as an economic principle.

Step 4: Answer The problem of "how to produce" is solved by adopting the least cost method of production, which is option B.

Exam tip: Remember the three basic questions with their keywords:

• What to produce → consumer demand/priorities
• How to produce → least cost technique
• For whom to produce → income distribution/purchasing power

Whenever you see "how to produce," think "least cost, efficient combination of factors."