📚 Part 1: Concepts and Quick Checks

1. Labour is described as a derived demand. Which option best explains this?

Because demand for labour comes directly from households' desire to work

Because demand for labour depends on the demand for the goods and services labour helps produce

Because demand for labour depends only on the supply of workers

2. Check all factors below that directly increase a firm's demand for labour:

Greater demand for the firm’s output (higher product demand)

Improvements in labour productivity

A decrease in the cost of complementary inputs (e.g. cheaper capital equipment)

An increase in the wage rate

3. Define derived demand in one sentence:

4. In a perfectly competitive product and labour market, a profit‑maximising firm hires labour up to the point where:

Marginal revenue product (MRP) = wage rate

Marginal product (MP) = wage rate

Total revenue = total cost

✏️ Part 2: Calculations and Short Answers

5. A small firm faces a product price of $10 per unit. Its production schedule is:

Workers: 0, 1, 2, 3, 4

Total product (units): 0, 10, 18, 24, 28

Wage = $120 per worker. Calculate the marginal product (MP) and marginal revenue product (MRP) for each additional worker. How many workers should the firm hire?

6. Explain briefly (2–3 lines): How does an increase in labour productivity affect a firm's demand for labour? Give one short example.

7. If the price of capital falls and capital is a substitute for labour, the firm's demand for labour will most likely:

Increase

Decrease

Stay roughly the same

🧭 Part 3: Application, Matching & Diagram

8. Match each factor with the most likely effect on a firm's labour demand. Draw lines between columns.

A. Rise in the price of the firm's product

B. Technological change that raises labour productivity

C. Technological change that substitutes capital for labour

D. Increase in the wage rate

1. Increase labour demand

2. Decrease labour demand

3. Ambiguous / depends on context

4. Decrease labour demand (movement along demand curve)

9. Draw the firm's short‑run labour demand curve (MRP). On your diagram label the wage line (w) and indicate the profit‑maximising employment level L*. Include axes: wage and quantity of labour.

10. Policy application (brief): Outline two ways government policy could affect demand for labour in an industry. For each, give a short example (1–2 sentences each).