If a worker's real wage rate falls, explain the consequent substitution effect. What is the relevance of the substitution effect to the slope of the labour supply curve?

(b) What is meant by the Value of the Marginal Product of labour (VMPL), and by the Marginal Revenue Product of labour (MRPL)? Illustrate this numerically, for a case where the employment of an extra worker changes a firm's weekly output of tables from 60 to 72, and the firm finds that it must sell its tables at the new price of £30 each (whereas the old price was £31).

Use a diagram to illustrate the social cost of monopoly (relative to perfect competition), being careful to label the areas indicating the consequent changes in consumer surplus and producer surplus, as well as the area representing deadweight loss.