When firms are faced with making strategic choices in order to maximize profit, economists typically use ____ to model their behavior.

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Game theory allows economists to model the behavior of firms in strategic decision-making situations, such as pricing decisions, advertising campaigns, and market entry/exit decisions. It considers the interdependence and potential responses of competitors in a strategic interaction, allowing firms to anticipate the behavior of their rivals and make optimal decisions. Monopoly theory, cartel theory, and perfect competition theory are useful in specific situations but are not as generalizable as game theory. The theory of aggressive competition is not a commonly used concept in economics.

When Firms Are Faced with Making Strategic Choices in Order