In the long run, a firm can produce 50 units of output either with 6 units of labour and 3 units of capital or with 3 units of labour and 6 units of capital. It picks the cheaper combination. At the level of the whole economy, this kind of choice is part of which central problem?
Answer & explanation
Correct answer: option 4
The correct answer is Option (4) → How are goods produced?
The firm is choosing between more labour with less capital and less labour with more capital. Deciding whether to use more labour or more machines is part of the central problem how are goods produced.
This question uses Production and Costs and Introduction together.
NCERT (2026-27): “3.7 Costs In order to produce output, the firm needs to employ inputs. But a given level of output, typically, can be produced in many ways. There can be more than one input combinations with which a firm can produce a desired level of output. In Table 3.1, we can see that 50 units of output can be produced by three different input combinations (L = 6, K = 3), (L = 4, K = 4) and (L = 3, K = 6). The question is which input combination will the firm choose? With the input prices given, it will choose that combination of inputs which is least expensive.” Introductory Microeconomics - Chapter 1, Introduction: “1.2 Central Problems of an Economy … How are these goods produced? Every society has to decide on how much of which of the resources to use in the production of each of the different goods and services. Whether to use more labour or more machines. Which of the available technologies to adopt in the production of each of the goods? …” |