Net Marginal Revenue

Will Truman & Associates, LLC, is a successful Manhattan-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 40-hour work week, with 15 hours spent on promotion, administrative, and supervisory responsibilities. Associates generate an average of 35 billable hours per 40-hour work week and spend 5 hours per week in administrative and training meetings. Variable overhead costs average 50% of rev- enues generated by partners and, given supervisory requirements, 60% of revenues generated by associates.

A. Calculate the annual (50 work weeks) 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.