Indiana University leases WATS lines and is charged according to the following rules: $400 per month for each of the first five lines; $300 per month for each of the next five lines; $100 per month for each additional line. The College of Arts and Sciences makes 150 calls per hour, the School of Business makes 120 calls per hour, and the rest of the university makes 30 calls per hour. Assume that each line can handle 30 calls per hour. Thus, the university will rent 10 WATS lines. The university wants to determine how much each part of the university should pay for long-distance phone service.

a Set up a characteristic function representation of the problem.

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b Use the Shapley value to allocate the university’s long-distance phone costs.


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