The law of diminishing returns states that as more and more variable factors of production are added to a fixed amount of other factors, eventually the marginal product of the variable factor will begin to decrease. In other words, while initially increasing the amount of labour increases output, at some point, each additional worker contributes less to the total output than the previous worker.

In the table, as the number of workers increases, the output also increases. However, the increase in output with each additional worker becomes smaller.

The marginal product (MP) of labour is the additional output gained by employing one more worker. Let's calculate the marginal product for each additional worker:

• Worker 1: MP = 10 tonnes
• Worker 2: MP = 15 tonnes (25-10)
• Worker 3: MP = 20 tonnes (45-25)
• Worker 4: MP = 15 tonnes (60-45)
• Worker 5: MP = 15 tonnes (75-60)

As we can see, the marginal product of labour initially increases, but then starts to fall. Specifically, the marginal product of labour falls from 20 tonnes to 15 tonnes when adding workers 4 and 5. This demonstrates the law of diminishing returns. This happens because the fixed resources (e.g., machinery, factory space) become increasingly crowded, reducing the efficiency of each additional worker. Workers may get in each other's way, leading to a lower overall output per worker.

The availability of a factor of production is undoubtedly a significant determinant of its demand, but it's not necessarily the *most* important. While a plentiful supply might encourage firms to use the factor, other factors often play a more dominant role.

Arguments for Availability being the most important:

• Cost:** If a factor is readily available, its cost to firms will be lower, making it more attractive.
• Production Capacity:** A sufficient supply ensures firms can meet their production targets without bottlenecks.
• Investment:** Firms are more likely to invest in technologies and processes that utilize readily available factors.

Arguments against Availability being the *most* important:

• Demand for the Product: As discussed earlier, the demand for the product being produced is a primary driver. Even with abundant availability, if there's no demand for the product, the demand for the factor will be low.
• Price of Alternative Factors: The relative price of alternative factors significantly influences demand. Even if a factor is available, if it's too expensive compared to alternatives, firms will opt for the cheaper option.
• Productivity: Improvements in productivity can make a factor more attractive, even if its availability isn't exceptional. A highly productive factor can compensate for limited availability.
• Government Policies: Government subsidies or regulations can significantly impact the demand for a factor, regardless of its inherent availability. For example, subsidies for renewable energy can increase the demand for materials used in solar panels, even if those materials aren't abundant.

Conclusion:

While availability is crucial, it's often intertwined with and influenced by other factors. The demand for a factor is a complex interaction of demand for the product, relative prices, productivity, and government policies. Therefore, it's difficult to definitively say availability is *the* most important. A strong demand for the product, coupled with a relatively low price and high productivity, can often overcome limitations in availability.

A company needs to carefully weigh several factors when deciding between labour-intensive and capital-intensive production. These factors can be broadly categorized as short-term and long-term implications:

Short-Term Considerations:

• Initial Investment Budget: The most immediate constraint is the available capital. If the budget is limited, labour-intensive methods may be the only feasible option.
• Market Demand Forecast: If demand is uncertain or expected to fluctuate significantly, labour-intensive methods offer greater flexibility to adjust production levels.
• Availability of Skilled Labour: If a readily available and skilled workforce exists, labour-intensive methods can be attractive.
• Production Speed Requirements: If a high volume of production is required quickly, capital-intensive methods are generally more efficient.

Long-Term Considerations:

• Cost Efficiency: Over the long term, capital-intensive methods typically offer lower per-unit costs due to economies of scale and automation.
• Product Quality and Consistency: Capital-intensive methods often lead to higher product quality and consistency.
• Technological Change: The company should consider the potential for future technological advancements. Investing in capital-intensive methods now may be a strategic decision to remain competitive in the future.
• Impact on the Workforce: The company needs to consider the social and ethical implications of automation, including potential job losses and the need for retraining programs.
• Government Regulations and Incentives: Government policies, such as tax breaks for investment in new technology, can influence the decision.

Potential Implications:

• Labour-Intensive (Short-Term): Lower initial costs, higher flexibility, but potentially higher per-unit costs in the long run. May require investment in training and development.
• Capital-Intensive (Short-Term): High initial costs, lower flexibility, but potentially lower per-unit costs in the long run. Requires ongoing maintenance and skilled technicians.

Ultimately, the optimal choice depends on a comprehensive analysis of these factors and the company's overall strategic goals. A detailed cost-benefit analysis is crucial.