Crane, Poole & Schmidt, LLC is a successful Boston-based law firm. Worker productivity at the firm is measured in billable hours, which vary between partners and associates. Partner time is billed to clients at a rate of $250 per hour, whereas associate time is billed at a rate of $125 per hour. On average, each partner generates 25 billable hours per 40hour workweek, with 15 hours spent on promotion, administrative, and supervisory responsibilities. Associates generate an average of 35 billable hours per 40hour workweek and spend 5 hours per week in administrative and training meetings. Variable overhead costs average 50 percent of revenues generated by partners and 60 percent of revenues generated by associates.
A. Calculate the annual (50 workweek) net marginal revenue product of partners and associates.
B. If partners earn $175,000 and associates earn $70,000 per year, does the company have an optimal combination of partners and associates? If not, why not? Make your answer explicit and support any recommendations for change.