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33 Suppose two players are engaged in the partnership, where each partner puts costly effort in the firm to generate profits. How- ever, the

  

33 Suppose two players are engaged in the partnership, where each partner puts costly effort in the firm to generate profits. How- ever, the firm generates some profits only in the case when both partners put at least one unit of effort. Specifically, each partner i = {1,2} chooses effort e; > 0. Partner i obtains the payoff: -ei, ui (ei, ej) = where j stands for the other player. ife; < 1, ((e; -1)+1) ee, if e; > 1, (a) Argue that (e1, e2)=(0,0) is a Nash equilibrium. (b) Find the best responses of each partner and plot them in the (e1, e2)-axes. (Hint: to find best responses, consider two cases: e; < 1 and e; > 1). (c) Find all the pure strategy Nash equilibria other than (0,0). Activate Windows Go to Settings to activate Windows.

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