Skip to content
We use only essential cookies to keep you signed in and remember your preferences. See our Cookie Policy.
TestStop
MocksPracticeResourcesIndiaBlogPricing
Sign in
Questions › GATE › GATE 2025 › Q57
2 marksGame Theory › Game theory and strategic behaviour › Incomplete information and auctionsHardabout 4 min

GATE 2025 Question 57: Game theory and strategic behaviour

There are two firms in an industry producing a homogeneous product. The market demand function is given by P=1−(q1+q2)P = 1 - (q_1+q_2)P=1−(q1​+q2​), where q1q_1q1​ and q2q_2q2​ are the output levels of Firm 1 and Firm 2, respectively.

Firm 1's cost function is common knowledge and equals zero. Firm 2's cost function is private information. Firm 1 believes that Firm 2's cost function is 0.5q20.5q_20.5q2​ with probability 0.5 and that Firm 2's cost function is 0.25q20.25q_20.25q2​ with probability 0.5. The firms choose their quantities simultaneously.

Let q1∗q_1^*q1∗​ denote the quantity produced by Firm 1 in the Bayesian Nash equilibrium of this game. Then, the value of 24q1∗24q_1^*24q1∗​ is ______ (round off to one decimal place)

Answer and worked solution

Checking your account…

Plain-text version

There are two firms in an industry producing a homogeneous product. The market demand function is given by P = 1 - (q₁+q₂), where q₁ and q₂ are the output levels of Firm 1 and Firm 2, respectively. Firm 1's cost function is common knowledge and equals zero. Firm 2's cost function is private information. Firm 1 believes that Firm 2's cost function is 0.5q₂ with probability 0.5 and that Firm 2's cost function is 0.25q₂ with probability 0.5. The firms choose their quantities simultaneously. Let q₁* denote the quantity produced by Firm 1 in the Bayesian Nash equilibrium of this game. Then, the value of 24q₁* is (round off to one decimal place)

Also written as: There are two firms in an industry producing a homogeneous product. The market demand function is given by P = 1 - (q_1+q_2), where q_1 and q_2 are the output levels of Firm 1 and Firm 2, respectively. Firm 1's cost function is common knowledge and equals zero. Firm 2's cost function is private information. Firm 1 believes that Firm 2's cost function is 0.5q_2 with probability 0.5 and that Firm 2's cost function is 0.25q_2 with probability 0.5. The firms choose their quantities simultaneously. Let q_1* denote the quantity produced by Firm 1 in the Bayesian Nash equilibrium of this game. Then, the value of 24q_1* is (round off to one decimal place)

Game theory and strategic behaviour has come up 61 times in 6 exams since 2008.

What this question tests

This question is on Incomplete information and auctions, part of Game theory and strategic behaviour in Game Theory.

Games where players do not know each other's types or values.

TestStop has 5 past-paper questions on this subtopic.

Take this paper as a timed mockMore on Incomplete information and auctions

Similar questions from other papers

  • GATE 2026 · Q31Two players use the following procedure to divide a perfectly homogeneous and continuously divisible cake. First, Player 1 divides the cake into two pieces and then…
  • IIT JAM 2026 · Q26Consider a simultaneous game with players X (strategies Top, Bottom) and Y (strategies Left, Right). Payoffs (i,j) give X 's and Y 's payoffs: Top-Left (1,2), Top-Right…
  • IIT JAM 2025 · Q48The sum of the payoffs to the players in the Nash equilibrium of the following simultaneous game is. Player X chooses C or NC and Player Y chooses C or NC. Payoffs (X…
  • UGC-NET 2025 · Q12Match List-I with List II A. Playing each strategy with probability B. Maximum payoff given the strategy of the other C. Long-run behavior D. Period of punishment is…
  • CUET-PG 2024 · Q5Firm 1 and firm 2 face the payoff matrix below (profit in INR crores): | Firm 2: Cooperate | Firm 2: Compete | Firm 1: Cooperate | 5, 5 | 0, 10 | Firm 1: Compete | 10…

Question from the GATE 2025 paper. Solutions are TestStop's own. Not affiliated with or endorsed by any examination authority.