There are two big consulting firms in Melbourne, McKinsey and Boston
Consulting Group (BCG); assume that their clients view them as providing
identical consulting services. They hire people on yearly contracts to work
as consultants, at a cost of about $96,000 per year, which is $8000 per
month. The only other expenses they incur are expenses related to doing a
project for a firm, of about $4000 per month per consultant in travel, food
and accommodation.
In the year 2013, the quantity demanded per month is Q=15,000 – P (or,
P=15,000-Q), where quantity is measured by the number of full-time consultant months (in other words, a client who buys “one unit” is buying the
time of one consultant for a month).
(a) McKinsey and BCG hire staff simultaneously on January 1 of each year.
Given the above information, how many people did McKinsey and BCG hire
in the year 2013?
Unfortunately, given the world recession, demand for consulting is shrinking.
At the beginning of each year, demand is estimated and it appears that it
shrinks by 2000 units: so demand in each year is
Year Demand per month
2013 Q=15,000 – P
2014 Q=13,000 – P
2015 Q=11,000 – P
2016 Q= 9,000 – P
2017 Q= 7,000 – P
2018 Q= 5,000 – P
Therefore, if prices remain at the current level, some consultants will be idle.
(b) Suppose that McKinsey and BCG retain all the staff they hired in 2013
(given by your answer to part (a) above), in 2018. How much would they
charge in 2018?