Economics 9708 · AS & A Level · 7.5
Explain, with a diagram, how this situation could be shown within the marginal revenue productivity theory used to determine wages and employment.
The price of the company’s product was above the average total cost. Discuss whether, in an imperfectly competitive market structure, a firm’s objective would necessarily require production to stop if reduced demand forces the price to fall.
This 25-mark question has a full step-by-step worked solution and mark scheme. One marking point: “Candidates need to explain MRP theory and the equilibrium position of the firm. Because it is a large company, it can be treated as operating in an imperfectly competitive market. A fall in demand shows up as shifts of AR and MR in the product market, and this then changes the MRP in the factor market.” …