DSE Economics | Labour Market and Wage Determination: A Tutor Guide

DSE Economics | Labour Market and Wage Determination: A Tutor Guide | MRP Before Minimum Wage

2026-11-03

Tutor lesson-prep guides · Secondary Economics

Students know wages come from supply and demand, then answer that a firm hires people by paying the wage, with no number attached. This lesson makes labour demand computable: marginal product times product price gives MRP, and hiring continues while MRP stays at or above the wage. At a wage of 80 the firm hires 3 workers; at a minimum wage of 100 it hires 2.

Objectives — Students can: (1) turn marginal products of 6, 5, 4, 3 and 2 at a price of 20 into MRP values of 120, 100, 80, 60 and 40; (2) read employment of 3 and a wage bill of 240 at a wage of 80; (3) read employment of 2, a bill of 200 and one displaced worker at a minimum wage of 100; (4) explain both the employment and the paybill effects; (5) compute 2.4 minutes per question and 0.833 marks per minute for 10 questions worth 20 marks in 24 minutes.

01 Prerequisites (3-minute check)

If any of these fails, fix it before the lesson starts.

Skill	Quick check	Pass mark
Marginal product	The fifth worker adds 2 units of output. What is that called?	Marginal product, here 2 units
Marginal revenue product	Marginal product is 2 and the price is 20. What is MRP?	40 dollars, since MRP equals marginal product times price
Profit maximisation	When does hiring stop?	When MRP falls below the wage, because the next worker loses money
Minimum wage	What happens if a minimum wage sits above equilibrium?	Labour demand falls and surplus labour appears, which is unemployment

02 Lesson flow (45 minutes)

Time	Stage	Tutor does	Student does
0-8 min	Import it from the product market	Write MRP equals marginal product times price and link it to marginal revenue	Recognise derived demand
8-18 min	Build the MRP table	Multiply 6 down to 2 by 20 to get five values from 120 to 40	All five values correct
18-26 min	Fix employment	At a wage of 80, three workers have MRP at or above the wage	The fourth is not hired
26-34 min	Minimum wage	At 100 only two qualify, so employment is 2 and the bill 200	One worker displaced
34-42 min	Diagram and prose	Draw a downward sloping labour demand curve with both wage lines	Diagram matches the table
42-45 min	Exit check	Four oral answers with notes closed	Employment and paybill both correct

03 Teaching script (read it out)

Scene 1: Labour demand is derived, not intrinsic

A firm hires because workers produce output that can be sold, so MRP equals marginal product times product price. When the product price falls, the whole labour demand curve shifts left and employment falls at any given wage. Say it until the student can supply an example such as falling flat prices reducing demand for renovation workers; otherwise the definition stays verbal.

Ask for an example where a change in product price shifts labour demand.

Scene 2: Hire while MRP is at or above the wage

At a wage of 80 the third worker has MRP exactly 80, so hiring adds nothing but loses nothing and the worker is taken on; the fourth has MRP 60, which earns 60 and costs 80, a loss of 20. Students often wait for equality and therefore stop one worker too early.

Ask why the fourth worker is not hired and how much the firm would lose.

Scene 3: A minimum wage has two layers of effect

First employment: a wage rise from 80 to 100 cuts hiring from 3 to 2 and leaves one worker unemployed. Second the paybill: 3 times 80 is 240 while 2 times 100 is 200, so the total falls by 40 even though the two retained workers each gain 20. Answers must give both layers, because employment alone is a partial answer.

Ask what the retained workers gain and what the displaced worker loses.

Scene 4: Elasticity decides how big the damage is

The less elastic labour demand is, the smaller the employment loss from a given minimum wage, and the paybill can even rise. Here MRP drops from 120 to 40, which is fairly elastic, so the paybill falls. Teach it by comparing a steep and a flat curve shifted by the same amount rather than by reciting a conclusion.

Ask whether a steeper MRP curve would raise or lower the job loss.

04 Question types and worked steps

Type	Example	Steps	Answer
Compute MRP	Marginal product and price given	Multiply each by the price, tabulate, label dollars	Not the same as marginal product
Fix employment	Wage and MRP table given	Take the largest number of workers whose MRP is at or above the wage, then explain the next one	Equality still counts
Minimum wage effect	New wage given	Reset employment, recompute the paybill, count displaced workers	Both layers required
Curve shifts	Product price or productivity change	Decide the shift direction, then the wage and employment change, and separate a shift from a movement	A price change shifts the curve

Sanity check (teach this): Order check: 6 times 20 is 120 and 2 times 20 is 40, so the five values must fall; any rise in the middle means a multiplication slip. Hiring check: at a wage of 80 exactly three values qualify at 120, 100 and 80, so an answer of 4 ignores that 60 is below the wage. Paybill check: 3 times 80 is 240 and 2 times 100 is 200, so a rising paybill after a minimum wage means employment was never adjusted.

05 Independent practice (3 questions)

Question	Answer	What to watch
Marginal product 4 at a price of 20, what is MRP	80 dollars	Price multiplied in
How many workers are hired at a wage of 80	3 workers	The equal case counted
Paybill at a minimum wage of 100	200 dollars	Not 3 times 100

06 Common mistakes and what to say

Mistake	Student writes	Say this
Reporting marginal product as MRP	“Marginal product is 4, so MRP is 4.”	“4 is units of output. Multiply by the price of 20 and MRP is 80 dollars, because labour demand is measured in money.”
Dropping the worker whose MRP equals the wage	“At a wage of 80 an MRP of 80 earns nothing, so hire 2.”	“Equal still counts, because nothing is lost. Hiring runs until MRP falls below the wage, so it is 3.”
Answering only unemployment	“A minimum wage raises unemployment.”	“Two layers: hiring falls from 3 to 2, losing one job, and the paybill falls from 240 to 200 while the two retained workers each gain 20.”
Calling a curve shift a movement along	“Product price falls, so workers accept lower wages and we move down the curve.”	“A lower product price lowers MRP, which shifts the whole labour demand curve left, so employment falls at the same wage.”

07 Homework (paper, section and question numbers)

Economics chapter index — Revise factors of production and costs, then do practice questions 1 and 2
S4 Demand, supply and elasticity — Question 3 uses the same elasticity reasoning on labour demand
S4 Market equilibrium — Questions 4 and 5 contrast a price ceiling with a minimum wage

08 Exit check (last 5 minutes)

Question	Answer	Decision
Marginal product 5 at a price of 20, MRP	100 dollars	Error: answered 5
Wage 80, how many hired	3 workers	Error: dropped the equal case
Minimum wage 100, how many unemployed	1 worker	Error: answered 2 or 0
Paybill before and after	240 falls to 200	Error: employment ignored

09 Tutor FAQ

Why does labour demand slope downward?

Diminishing returns: more workers share the same machines and space, so marginal product falls and MRP with it, which means only a lower wage justifies more hiring.

Is a minimum wage always harmful?

No. If labour demand is inelastic, employment barely moves while retained workers earn more, so the paybill can rise. This example shows job loss because MRP falls steeply from 120 to 40.

Must the term MRP be memorised?

Recognise the abbreviation and its two parts, because questions use it directly. Writing marginal product times product price is safer than the letters alone.

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A TutorZone lesson-prep guide. Written by the TutorZone team; questions and lesson flow are original and are not taken from any school or publisher material.