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

1. Analyze the question The question asks how an economy solves the basic problem of "how to produce." This is one of the three (or four) fundamental economic questions every society must answer.

2. Explain the concept Every economy faces scarcity, so it must decide:

• What to produce: which goods and services, and in what quantities
• How to produce: which technique or combination of resources to use
• For whom to produce: how output is distributed

The "how to produce" question is about choosing the technique of production, which can be labour intensive (more labour relative to capital) or capital intensive (more machines relative to labour). Because resources are scarce, the sensible way to choose is to pick the technique that gives the lowest cost per unit of output, that is, the most efficient use of scarce resources.

3. Step-by-step solution

• Option B: combining both methods is not a rule for deciding. It is just one possible outcome.
• Option C: employing a manager is a matter of organization, not the choice of technique.
• Option D: capital intensive is not always best. In a country with abundant labour and scarce capital, it may be more costly.
• Option E: labour intensive is not always best either. For large-scale or precision production, it can be more costly.
• Option A: adopting the least cost method applies to any economy and any industry. Whether the result is labour or capital intensive depends on relative factor prices and availability, but the guiding principle is always minimizing cost.

4. Answer The correct option is A. adopting the least cost method of production.

5. Exam tip Link each basic question to its key principle:

• What to produce → scale of preference / opportunity cost
• How to produce → least cost (efficient) technique
• For whom to produce → income distribution / purchasing power

If an option says "always use X method," be suspicious. Options that give a general principle, such as "least cost," are usually the correct ones.