In 2016, a country's largest yacht builder said it would have to make 350 people redundant. The company, which builds luxury yachts, said demand had decreased in the recession.

Mark scheme

Marking points from the official mark scheme (Feb/Mar 2018). The mark or mark type is shown in brackets.

1. Candidates need to explain MRP theory and the equilibrium position of the firm. It is a large company so it can be presumed that the market is imperfectly competitive. Demand decreases are reflected in shifts of AR and MR in the product market, which in turn affects the MRP in the factor market.
2. L4 (9-12) for a clear analysis of MRP theory; an explanation of the equilibrium and a comment on how that will change if the MRP curve shifts
3. If price is above ATC it will be making supernormal profit. It need not stop production either because it still makes normal profit, or reduced supernormal profit in the long run or even if the price is still above the AVC in the short run. This assumes an aim of profit maximisation. The firm may have other aims apart from profit maximisation and these, such as satisficing, may also mean production does not have to cease.
4. L4 (9-13) for an accurate analysis distinguishing between supernormal and normal profit and for a correct discussion of the significance of the AVC in the short and long run, and a comment on possible alternative aims together with a conclusion