When firms are faced with making strategic choices in order to maximize profit,what do economists typically use to model their behaviour

Question

Quizplus · Accepted Answer

Economists typically use game theory to model the behavior of firms when making strategic choices to maximize profit. Game theory helps to understand the interdependence of decision-making among firms and how they can anticipate the actions of their rivals. A game-theoretic model considers each player's possible moves, as well as their expected reactions and counter-moves from rivals. This approach provides insights into how competitive dynamics within an industry may evolve over time, and how optimal strategies can be identified.

When Firms Are Faced with Making Strategic Choices in Order