Question

When firms are faced with making strategic choices to maximize profit, economists typically use a. the theory of monopoly to model their behavior. b. the theory of aggressive competition to model their behavior. c. game theory to model their behavior. d. cartel theory to model their behavior

Answer 1

The correct answer is option c.

Step-by-step explanation:

Game theory is a tool in economics. It helps to understand the situation in cases where rational players interact and act in a strategic manner. For instance in an oligopoly market where there are few firms, which are interdependent.

These firms or producers are rational players who have to decide output and price level in order to maximize their economic profits.

The theory of monopoly can be applied only in case of monopoly market. The cartel theory is applicable if firms have formed a cartel. Aggressive competition model is not always necessary.

So, the correct answer here will be option c.