The first question " What to Produce?" is simply asking what a society must decide on. For example is the society decides to produce food, it then must decide what type of food, of the amount of food they want to produce.This however, the society must still consider if they want to use most of its resourced on this production or not.
Now that the society has decided on what to produce, they now have to decide on "how to produce". Whether they want to use a factory and less workers, or more workers and less machinery. For example if they had decided on food, they may have chose for more workers rather than machinery. Their method of production is still influenced by their location.