Compulsory Benefit Costs

Essay

Compulsory Benefit Costs. The Telemarketing Louisianan Company generates leads for a major credit card company using over-the-phone solicitations. Each lead generated brings TLC $10 in fees, and these fees are stable given the competitive nature of the telemarketing business. TLC's relies upon independent contractors (sales associates) who work on a commission-only basis. Weekly total cost (TC) and marginal cost (MC) relations are:

where Q is thousands of refinancing applications processed.
Suppose the US Department of Labor recently ruled that TLC's sales associates must be considered employees entitled to benefits under the Employee Retirement Income Security Act (ERISA). As a result, TLC's marginal cost of doing business will rise by $1 per unit. TLC's fixed expenses, which include a required return on investment, will be unaffected.