Professors Smith and Jones are each separately considering leaving the universit

Question

Professors Smith and Jones are each separately considering leaving the university to become independent economic consultants. Their current salaries are $100K and $80K respectively. Each estimates that the costs for their consultant businesses will run about $60K per year. Professor Smith, being more well?known than Jones, will earn $155K as a consultant, while Jones will only earn $145K. Advise them:

A. Smith should stay at the University and Jones should leave to consult. B. Jones should stay at the University and Smith should leave to consult. C. Both should stay at the University. D. Both should leave to consult.

PLEASE EXPLAIN IN DETAIL

Explanation / Answer

A. Smith should stay at the University and Jones should leave to consult

because $155K - $60K =$95k which is less than smiths current salary

and

$145K - $60K=$85 which is more than jones salary

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