meritnation experts can u give me the graphs of problem 'how to produce' and 'for whom to produce' with a small explanation?
How To Produce:
Every economy must decide the production techniques to be employed in the production of goods and services. The economy must choose among the labour-intensive techniques of production and the capital-intensive techniques of production. The economy decides which technique of production to adopt so as to utilise its available resources in the best possible manner. For a labour abundant country such as India, it will be more beneficial to use labour intensive techniques of production. On the other hand, for a capital abundant country such as USA, it will be more beneficial to opt for the capital intensive techniques of production.
In the figure, goods produced by the labour intensive techniques of production are plotted on the x-axis, while, goods produced by the capital intensive techniques of production are plotted on the y-axis. A country using only labour-intensive techniques will produce on a point on the x-axis (such as point A on the curve), whereas, if a country uses only capital intensive technique of production, will produce on a point on the y-axis (such as point B). Between the two extremes points of A and B, a country can also use a combination of the two production techniques (such as point C and D) in the varying ratios. How much labour or how much of capital units are allocated by the country in the production of goods depends on its factor endowments, i.e. the units of labour and units of capital available to it.
For Whom to Produce
For whom to produce is the problem of distribution of final goods and services in an economy. A country must decide the distribution of goods and services among the different segments of population (rich and poor).
In the above figure, on x-axis we have plotted goods that are demanded by the poor section of the population, while, on the y-axis we have plotted goods that are demanded by the rich section of the population.
If the country decides only to produce the goods required by the poor section, then it will be producing at a point on the x-axis (such as A). On the other extreme, if the country decides to produce solely for the richer section of the population, then the production will be at a point on the y-axis (such as point B).
However, practically a country produces a combination of the goods required by the rich and the poor. In such a case, the production takes place on a point such as C.