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Scarcity and Opportunity Cost: Question 9

Syllabus 1.1

Multiple choice 1 mark

A furniture factory currently makes chairs largely by hand, using a large team of skilled workers and only a few basic tools. The factory's owners are now deciding whether to invest in automated cutting machines, so that a much smaller number of workers can produce the same chairs.

Which of the three basic economic questions does this decision by the factory's owners best illustrate?

Choose an answer to check it, then compare with the worked solution below.
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Worked solution

Step 1: Recall the three basic economic questions

Every producer facing scarce resources must decide what to produce, how to produce it, and for whom to produce it. “How to produce it” specifically concerns the choice of production method, for example, which combination of labour and machinery, or which materials and techniques, to use to make a given good.

Step 2: Identify what is actually changing in the scenario

The factory is not changing its product: it is still making chairs before and after the possible investment. What the owners are deciding is whether to use mostly workers with basic tools, or fewer workers supported by automated cutting machines, to produce those same chairs. This is a choice about production method, the combination of labour and capital used, which is exactly what the “how to produce it” question covers.

Step 3: Rule out the other options

  • Option A is incorrect because the product itself, chairs, is unchanged; only the method of making them is under discussion.
  • Options C and D both incorrectly bring in “for whom to produce it”, which is about which customers receive the output. Neither the choice of customer nor the resulting change in the number of jobs is what is being decided here; the change in employment is simply a side effect of choosing a more capital-intensive production method, not a decision about who the chairs are for.

Final answer

The factory’s decision is about which combination of workers and machinery to use to make the same chairs, so it illustrates how to produce it, option B.