Question: Allocation of common costs. Evan and Brett are students at Berkeley College. They share an apartment that is owned by Brett. Brett is considering subscribing to an Internet provider that has the following packages available:
Evan spends most of his time on the Internet ("everything can be found online now"). Brett prefers to spend his time talking on the phone rather than using the Internet ("going online is a waste of time"). They agree that the purchase of the $90 total package is a "win-win" situation.
1. Allocate the $90 between Evan and Brett using
(a) the stand-alone cost-allocation method,
(b) the incremental cost-allocation method, and
(c) the Shapley value method.
2. Which method would you recommend they use and why?