According to economic theory, what is the significance for a firm in a perfectly competitive labour market of a worker's marginal product and average product?

Mark scheme

Marking points from the official mark scheme (Feb/Mar 2019). The mark or mark type is shown in brackets.

1. [12] Candidates need to explain the MRP theory and the equilibrium position of the firm comparing MRP with supply. Question specifies marginal product so the answer should not just mention demand with no reference to MRP. MRP and supply determine wage; AP is used to construct the ARP which is significant in determining level of profit for the firm.
2. [9-12] L4: for a clear analysis of the MRP theory; an explanation of the equilibrium position and a comment on relevance of ARP for profit.
3. [7-8] L3: for a weaker but correct analysis of the theory probably with a poor attempt to deal with the ARP and profit levels.
4. [5-6] L2: for a limited attempt at both the MRP and ARP/profit element of the answer.
5. [1-4] L1: For an answer that has some basic correct facts but includes irrelevancies and errors of theory.
6. [13] Not possible for a trade union to increase wages in perfect competition.
7. [13] Discussion of imperfectly competitive market; of monopsony (can increase wage up to point where MC=MR); or possible increase in productivity; or when labour is a small element of cost; or when there is an increase in demand for the product; or when there is an increase in price (and thus MR) of product.
8. [9-13] L4: for recognition of the difference between perfect and imperfect competition and a clear analysis of the imperfectly competitive case recognising different possible outcomes.
9. [7-8] L3: for a competent analysis, without a clear distinction between the two types of market structure and without recognising the different possible outcomes in imperfect competition.
10. [5-6] L2: for an answer that concentrates on one of the market structures or considers both structures but with poor analysis.
11. [1-4] L1: for an answer that has some basic correct facts but includes irrelevancies and errors of theory.