Question: 20 points) Two friends E and U jointly own a small business. E provides the capital, which we denote by k where 0 k 1.

20 points) Two friends E and U jointly own a small business. E provides the capital, which we denote by k where 0 k 1. U on the other hand provides labor which we will denote by l, 0 l 1. The production function is kl, and the price of the product is set at $1, so the total revenue is kl, if E provides k units of capital and U provides l units of labor. The two friends share the revenue kl equally. In order to provide k units of Capital E incurs a cost of k 4 . Likewise, in order to provide l units of labor U suffers a cost of l 2 4 . E and U choose k and l simultaneously. The payoff for each individual is the share of the revenue less the respective cost for the individual. Thus E's payoff function is 1 2 kl k 4 , and U's pay off function is 1 2 kl l 2 4 . Formulate the above problem as a Normal Form game and find the pure strategy Nash Equilibria in the game

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