"Every society must decide on how much of each of the many possible goods and services it will produce". The above statement relates to the central problem of:

What to produce?

The correct answer is Option (2) → What to produce?

What is produced and in what quantities? Every society must decide on how much of each of the many possible goods and services it will produce. Whether to produce more of food, clothing, housing or to have more of luxury goods. Whether to have more agricultural goods or to have industrial products and services. Whether to use more resources in education and health or to use more resources in building military services. Whether to have more of basic education or more of higher education. Whether to have more of consumption goods or to have investment goods (like machine) which will boost production and consumption tomorrow. 

This fundamental question addresses the allocation of society's limited resources to produce various goods and services based on preferences, needs, and available resources.