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Answered: - Day care services in a small Midwestern city cost $30 per


Day care services in a small Midwestern city cost $30 per day per child. The high cost of these services is one reason why very few mothers who are on welfare work; given their low potential wages, virtually no welfare mothers are willing to pay these high costs. To combat this problem, the city establishes a new program: In exchange for their welfare benefits, a group of welfare recipients is required to provide day care for the children of other welfare recipients who obtain private-sector employment. The welfare mothers who use these day care services are required to pay a fee of $3 per day per child. These services prove very popular; 1,000 welfare children receive them each day and an additional 500 welfare children are on a waiting list to receive them. Do the mothers of the 1,000 children who receive services under the program value these services at $30,000 ($30 x 1,000) a day, $3,000 a day ($3 x 1,000), or at a value that is greater than $3,000 but less than $30,000? Explain.

 


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