4. Game theory:
A. is the analysis of how people (or firms) behave in strategic situations.
B. is best suited for analyzing purely competitive markets.
C. reveals that mergers between rival firms are self-defeating.
D. reveals that price-fixing among firms reduces profits.

Question

4.    Game theory:
A.    is the analysis of how people (or firms) behave in strategic situations.
B.    is best suited for analyzing purely competitive markets.
C.    reveals that mergers between rival firms are self-defeating.
D.    reveals that price-fixing among firms reduces profits.

BlackTom AI · Accepted Answer

The question concerns game theory and asks which statement is true about it.
Option A: 'is the analysis of how people (or firms) behave in strategic situations.' This is accurate because game theory studies strategic interactions where the outcome for each participant depends on the actions of others, including behavior of individuals and firms in competitive settings.
Option B: 'is best suited for analyzing purely competitive markets.' This is not correct. Game theory is particularly powerful for strategic settings with interdependencies, such as oligopolies or markets with few players, where strategic choices matter; it is not limited to purely competitive (perfect competition) markets.
Option C: 'reveals that mergers between rival firms are self-defeating.' This is an overstatement. Game theory can show conditions under which mergers improve or harm payoffs, depending on strategic complementarities, market structure, and incentives; it does not universally declare mergers self-defeating.
Option D: 'reveals that price-fixing among firms reduces profits.' While price-fixing can reduce consumer welfare and may be illegal, game-theoretic models can yield various outcomes depending on enforcement, collusion stability, and market dynamics. It is not an absolute general finding that price-fixing always reduces profits in all contexts.
In summary, Option A correctly captures the core idea of game theory as the study of strategic behavior in interdependent situations, while the other options either overgeneralize or misstate the scope or implications of game-theoretic analysis.

ECNM1116.32925.202530 Practice Quiz Oligopoly and Strategic Behavior

4. Game theory: A. is the analysis of how people (or firms) behave in strategic situations. B. is best suited for analyzing purely competitive markets. C. reveals that mergers between rival firms are self-defeating. D. reveals that price-fixing among firms reduces profits.

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