This law states that as more and more of a good is produced, its opportunity cost increases. Q1 is a question of choice - which combination of goods to produce among all possible combinations. To answer Q1 must know what the consumers want - so must answer Q2. Q3 is basically a question of technology. In Command economies, majority of the decisions are made by a central planner.
Market economies are more efficient than command economies.
In market economies Prices play very important roles. Prices reflect how much people value goods and what sacrifices society have to make to provide the goods. Prices have important signaling effects - price changes tell producers and consumers that the market is changing and give some idea regarding what the possible causes might be. This information is crucial for adjusting quantities produced and consumed. Prices help ration the use of scarce resources.