When strategic interactions are important to pricing and production decisions, a firm will:
A)assume that competing firms are already maximising profit
B)consider exiting the market
C)consider how competing firms might respond to its actions
D)generally operate as if it is a monopolist

Question

Quizplus · Accepted Answer

When strategic interactions are important to pricing and production decisions, a firm needs to consider how its competitors might respond to its actions. This will help the firm to make appropriate pricing and production decisions to gain market share and increase profits. The firm should not assume that competing firms are already maximizing profit, as this may not always be the case. The idea of exiting the market may not be the best solution as it requires a lot of investment and resources to re-enter the market. Also, operating as if it is a monopolist is not an appropriate response as it is illegal and can result in serious legal consequences.

When Strategic Interactions Are Important to Pricing and Production Decisions