Optimal Input Mix

question 31

Essay

Optimal Input Mix. Brisco, Van Buren & Associates is a New York City based law firm. Anita van Buren, managing partner of Brisco, Van Buren is reviewing the firm's compensation plan. Currently, the firm pays its staff attorneys salaries based upon the number of years of service. The value of billable hours generated by each staff attorney during the past year are as follows:

Van Buren believes some adjustment to the compensation paid all staff members would be appropriate. Van Buren is considering changing from the current compensation plan to one whereby each staff member would be paid a salary equal to 10% of client billings (gross revenue generated). Van Buren sees such a plan as fairer to the parties involved and believes it would also provide strong incentives for needed client development.
A. Calculate Brisco, Van Buren's salary expense for each employee expressed as a percentage of the client billings generated by that individual.
B. Calculate income for each employee under a 10% commission-based system.
C. Will a commission-based plan result in efficient relative salaries, efficient salary levels, or both?

Identify the relationship between income changes and the demand for goods.

Understand the impact of price changes on total revenue.

Distinguish between inferior goods, normal goods, and luxury goods based on income elasticity.

Analyze the effects of elasticity on business and economic decisions.

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Definitions:

Reinforcement

A process in behavioral psychology that increases the likelihood of a behavior being repeated, through positive or negative stimuli.

Discriminative Stimulus

A stimulus in the environment that increases the probability of a particular behavioral response due to its association with a reinforcement or punishment.

Stop Sign

A traffic sign designed to inform drivers that they must come to a complete stop and not proceed until it is safe to do so.

Positive Reinforcement

Positive reinforcement involves the addition of a rewarding stimulus following a desirable behavior, with the aim of increasing the likelihood of that behavior being repeated.