Which theory helps us study the strategic behavior of oligopolistic firms?

• A. Game theory
• B. Monopoly theory
• C. Consumer choice theory
• D. Perfect competition theory

Answer: (A)

Verified step by step guidance

1. Understand that the problem asks which theory is used to analyze the strategic interactions among firms in an oligopoly, where a few firms dominate the market.
2. Recall that in oligopolistic markets, firms must consider the potential reactions of their competitors when making decisions, such as setting prices or output levels.
3. Recognize that Monopoly theory focuses on a single firm controlling the market, Consumer choice theory deals with how consumers make decisions, and Perfect competition theory assumes many firms with no strategic interaction.
4. Identify that Game theory is the branch of economics that studies strategic decision-making among interdependent agents, making it the appropriate framework for analyzing oligopolistic firms.
5. Conclude that Game theory provides tools like payoff matrices and equilibrium concepts (e.g., Nash equilibrium) to predict and explain the behavior of firms in oligopolies.