The Little Beaver Daycare Centres, a not-for-profi t organization, provides daycare services to low-income families in 20 communities in Alberta. The manager's summary report for the past four months of operations is reproduced here:

The daycare receives an operating subsidy from the city, but, unfortunately, the operating loss incurred through June ($79,392) is larger than anticipated. Part of the problem is the salary increases that went into effect in June, which were overlooked when the budget was submitted to the city last year. To compound the problem, the warm summer months traditionally bring with them an increase in additional summer outdoor activities. Thus, the daycare experiences additional costs during July.
The accountant made the following assumptions in developing the cost function:
€¢ Salaries are fi xed, and June values are used.
€¢ Daycare supplies vary with seasonal activities.
€¢ Rent and utilities are fi xed, and last period's costs are used.
€¢ Other expenses are mixed and, using regression, fixed cost is $702 and variable cost is $2.53 per child.
REQUIRED
The centre management is considering an increase in daycare fees to reduce losses.
A. Develop a cost function for these data. You may have done this for Chapter 2, and in that case, use that cost function. Using the cost function you developed, solve for the average daycare fee necessary to break even, assuming that there are 940 children. Compare this new fee with the average daycare fee charged during March through June.
B. Suppose the centre raises its daycare fees to break even. What problems do you see from the families' perspective if the fee is raised?
C. In this setting, would an increase in fees be likely to affect number of children attending the daycare? What problems do you see from the centre's perspective if the fee is raised?
D. Other than raising the fee, what ideas might the centre consider to balance the budget?

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Total Number of children $4,230$4,180 3,875 4,260 $16,545 Daycare staff salaries Daycare supplies used Administrative salaries 1,000 Other expenses Operating surplus (loss)$19.789 19.505) S19502) $120,596) $179 392)