KPNG is a successful Melbourne-based accounting firm. Key consideration for worker productivity (their Marginal product) at the firm is billable hours, which vary between partners and associates. On average, each partner generates 20 billable hours per workweek, with 15 hours spent on promotion, administrative, and supervisory responsibilities. Associates generate an average of 40 billable hours per workweek and spend 5 hours per week in administrative and training meetings. Partner time is billed to clients at a rate of $600 per hour, whereas associate time is billed at a rate of $300 per hour. Variable overhead costs average 40 per cent of hourly revenues generated by partners and 60 per cent of hourly revenues generated by associates.

A. Calculate the annual (47 workweeks) net marginal revenue product of partners and associates. (4 Marks)

B. If partners earn $350,000 and associates earn $150,000 per year, does KPNG have an optimal combination of partners and associates? (1 Mark) If not, why not? Make your answer explicit and support any recommendations for change. (1 Mark)