These are original Marlbridge practice questions, not past exam questions. The mark points are a suggested Marlbridge rubric to help you check your work; they are not an official scoring guideline. All firms, places and data are fictional. Only subtraction and multiplication are needed. Give money values in dollars, to 2 decimal places where needed.
Question 1 (multiple choice · foundation)
Which statement correctly describes the market for the labour of software testers?
- (A) Firms are the buyers, households are the sellers, and the price is the wage.
- (B) Households are the buyers, firms are the sellers, and the price is the wage.
- (C) Firms are the buyers, households are the sellers, and the price is rent.
- (D) Firms are the buyers, households are the sellers, and the price is the price of the software the testers help to make.
Answer and explanation
Answer: (A). In a factor market, households sell the services of their labour and firms buy them. The price of labour is the wage.
- (B) uses the product-market roles. In factor markets the roles are reversed.
- (C) gets the roles right but names the payment to land, not labour.
- (D) confuses the factor price with the output price. The software price affects how much firms want testers (derived demand), but it is not the price of labour.
Question 2 (multiple choice · core)
Pemberly Car Wash sells washes in a perfectly competitive market at $12 per wash. Its daily output is:
| Workers | 0 | 1 | 2 | 3 | 4 | 5 |
|---|---|---|---|---|---|---|
| Washes per day | 0 | 14 | 26 | 36 | 44 | 50 |
What is the marginal revenue product of the 3rd worker?
- (A) $432
- (B) $144
- (C) $120
- (D) 10 washes
Answer and explanation
Answer: (C). MP of the 3rd worker = 36 − 26 = 10 washes. Pemberly is a price taker, so MRP = MP × P = 10 × $12 = $120. Check: total revenue rises from 26 × 12 = $312 to 36 × 12 = $432, a change of $120.
- (A) is total revenue with 3 workers (total product × price), not the change.
- (B) is total revenue divided by the number of workers ($432 ÷ 3), an average, not a marginal value. (It happens to equal the 2nd worker’s MRP.)
- (D) is the marginal product. MRP must be in dollars.
Question 3 (multiple choice · core)
In a given labour market, other things constant, why does the quantity of labour supplied rise as the wage rises?
- (A) A higher wage makes workers more productive, so firms want more of them.
- (B) A higher wage raises the opportunity cost of leisure and draws workers from other occupations.
- (C) A higher wage shifts the labour supply curve to the right.
- (D) Firms hire more workers when the wage rises.
Answer and explanation
Answer: (B). Each hour not worked now costs more in lost pay, and the job becomes more attractive than other jobs, so more hours are offered.
- (A) mixes up supply and demand, and a higher wage does not change marginal product.
- (C) confuses a movement with a shift. A change in the wage moves along the supply curve.
- (D) is wrong on two counts: it describes firms (demand), and firms hire fewer workers when the wage rises.
Question 4 (multiple choice · core)
A small workshop’s total cost depends on the number of workers it hires:
| Workers | 0 | 1 | 2 | 3 | 4 |
|---|---|---|---|---|---|
| Total cost ($ per day) | 500 | 590 | 680 | 770 | 860 |
What is the marginal resource cost of the 3rd worker?
- (A) $270
- (B) $256.67
- (C) $770
- (D) $90
Answer and explanation
Answer: (D). MRC = change in total cost = 770 − 680 = $90. MRC is $90 for every worker, which tells you the workshop pays a market wage of $90 a day.
- (A) is the total labour cost of 3 workers (770 − 500), not the extra cost of the 3rd.
- (B) divides total cost, including the $500 fixed cost, by 3. That is an average, and fixed cost never affects MRC.
- (C) is the level of total cost, not the change.
Question 5 (calculation · core)
Larkmoor Jam makes a distinctive jam and faces a downward-sloping demand curve. To sell Q boxes a day it must charge P = $30 − 0.25Q per box on every box.
| Workers | 0 | 1 | 2 | 3 | 4 |
|---|---|---|---|---|---|
| Boxes per day | 0 | 20 | 36 | 48 | 56 |
(a) Calculate the price, total revenue and MRP for each number of workers. (b) For the 2nd worker, calculate MP × P and explain why it is greater than MRP. (c) The market wage is $120 a day. Which workers add more to revenue than to cost?
Worked solution
(a)
| Workers | Boxes | Price ($) | TR ($) | MRP ($) |
|---|---|---|---|---|
| 0 | 0 | 30 | 0 | – |
| 1 | 20 | 25 | 500 | 500 |
| 2 | 36 | 21 | 756 | 256 |
| 3 | 48 | 18 | 864 | 108 |
| 4 | 56 | 16 | 896 | 32 |
(b) MP of the 2nd worker = 36 − 20 = 16 boxes. MP × P = 16 × $21 = $336. But to sell 36 boxes instead of 20, Larkmoor must cut its price from $25 to $21 on the first 20 boxes as well, losing 20 × $4 = $80. MRP = 336 − 80 = $256. Larkmoor has market power, so MR < P and MRP = MP × MR is below MP × P.
(c) MRC = $120 for every worker. Workers 1 ($500) and 2 ($256) add more to revenue than to cost. The 3rd worker adds $108, which is less than $120. So the first 2 workers.
Suggested mark points (4): 1 for the prices and total revenues; 1 for all four MRPs as changes in TR; 1 for $336 with the price-cut explanation; 1 for identifying workers 1 and 2 by comparing MRP with $120.
Common error: using MRP = MP × P throughout, which gives $336, $216 and $128. This ignores the price cut on earlier boxes and would wrongly suggest that the 3rd and 4th workers are worth hiring.
Question 6 (graph · core)
Corran is a fictional city with a competitive market for food-delivery riders.
(a) Draw a correctly labelled graph of the market for delivery riders. Show the equilibrium wage We and quantity Qe. (b) Explain why the demand curve for riders slopes downward. (c) Explain why the supply curve of riders slopes upward. (d) Suppose the wage is at W₁, below We. Show W₁ on your graph, label the quantities demanded and supplied, and explain what happens to the wage.
Model answer and suggested Marlbridge rubric
(a) Vertical axis: “Wage rate ($ per hour)”. Horizontal axis: “Quantity of riders” (or “Quantity of labour”). A downward-sloping curve labelled D (or MRP) and an upward-sloping curve labelled S, crossing at We and Qe, marked on both axes.
(b) Delivery firms hire riders for the revenue their deliveries bring (derived demand). With a fixed fleet of bikes and a fixed dispatch system, each extra rider adds fewer deliveries, so MRP falls. A lower wage makes riders with lower MRP worth hiring, so the quantity demanded rises as the wage falls.
(c) A higher wage raises the opportunity cost of not working, so existing riders offer more hours, and it draws people from other jobs into delivery work.
(d) Draw a horizontal line at W₁ below We. It meets the demand curve at a larger quantity (Qd) and the supply curve at a smaller quantity (Qs). The gap Qd − Qs is a shortage of riders. Firms compete for the scarce riders by offering higher pay, so the wage rises towards We; as it does, quantity supplied rises and quantity demanded falls until they are equal.
| Point | What earns it |
|---|---|
| 1 | Correctly labelled axes and curves, with We and Qe shown |
| 1 | Downward slope explained by falling MRP (diminishing marginal product) |
| 1 | Upward slope explained by opportunity cost of leisure or workers moving between jobs |
| 1 | W₁ below We with Qd > Qs labelled as a shortage, and the wage rising |
Do not award the last point for “the demand curve shifts left”: the wage changes, so the market moves along both curves.
Question 7 (explanation · stretch)
Two fictional firms each consider hiring one more worker. In both firms, the extra worker would add 15 units of output a day.
- Firm A sells in a perfectly competitive market at $8 per unit.
- Firm B is the only seller of its product. It now sells 100 units a day at $8.40. To sell 115 units, it must cut its price to $8.00 on every unit.
(a) Calculate the MRP of the extra worker at Firm A. (b) Calculate the MRP of the extra worker at Firm B, using total revenue. Show that it equals the revenue from the extra units minus the loss on the units already sold. (c) Both firms pay a market wage of $100 a day. Which firm should hire the extra worker? Explain. (d) Explain why two workers with the same marginal product can have different MRPs, and what this implies for the slope of each firm’s demand for labour.
Model answer and suggested Marlbridge rubric
(a) Firm A is a price taker, so MRP = MP × P = 15 × $8 = $120.
(b) Total revenue before: 100 × $8.40 = $840. After: 115 × $8.00 = $920. MRP = 920 − 840 = $80. Check: the 15 extra units bring 15 × $8 = $120, but the price cut of $0.40 on the 100 units already sold loses $40; 120 − 40 = $80.
(c) MRC = $100 at both firms. At Firm A, MRP $120 > $100, so hiring adds $20 to profit: hire. At Firm B, MRP $80 < $100, so hiring would cut profit by $20: do not hire.
(d) MRP = MP × MR. The workers produce the same extra output, but Firm B must lower its price to sell that output, so its MR is below the price and each extra unit adds less to revenue. As each firm hires more, MP falls at both firms, but at Firm B MR falls too. So Firm B’s MRP (labour demand) curve falls more steeply than Firm A’s.
| Point | What earns it |
|---|---|
| 1 | $120 for Firm A |
| 1 | $80 for Firm B, with the $120 − $40 breakdown |
| 1 | Correct hiring decision for both firms by comparing MRP with MRC of $100 |
| 1 | Difference explained by MR < P for the firm with market power |
| 1 | Firm B’s labour demand is steeper because both MP and MR fall |
Accept “Firm B’s demand for labour is less elastic” for the last point if it is linked to MR falling as output rises.
How did you do?
- Q1 or Q3 wrong: re-read “Two kinds of market”, “Factors and their prices” and “The labour market: demand and supply” in the study guide.
- Q2 or Q4 wrong: re-read “Marginal revenue product”, “Marginal resource cost” and Worked example 1. Use changes, not totals.
- Q5 or Q7 incomplete: re-read Worked example 2 on firms that must cut their price to sell more.
- Q6 graph marked down: check Figure 3 for the labels, and remember that a wage change is a movement along the curves.
Then tick off the topic checklist.