Question

Explain the problem of how to produce.

Answer 1

Once the decision regarding the goods to be produced is taken, the next problem of how to produce i.e. to decide what techniques should be adapted to produce the commodity arises. This function is related to the allocation of resources to production techniques which have to be employed during the production of goods and services. The production of goods and services can take place in two ways –labour-intensive technique and capital-intensive technique. The labour-intensive technique involves more of labour and less of capital in the output, while it is reverse for the capital-intensive technique. Therefore, it is upon the economy to decide on a specific method of production for particular goods. The economy has to decide between the automatic machines and handicrafts. Every method has its own advantages and disadvantages. Mechanisation increases the quantity and quality of the goods. But as it requires fewer workers, it results in unemployment. Handicrafts reduce unemployment and the quantity of production is lesser. The economy has to decide about the techniques of production on the basis of the cost of labour and capital.