1. 

Olivia is thinking about opening a new bakery (the entrant). There is already a bakery open in her neighborhood (the incumbent), and the owner of the incumbent bakery makes it clear that if Olivia enters the market, they will cut their prices in an attempt to drive the new bakery out of business. Based on the payoff matrix below, is the incumbent's threat credible? That is, if Olivia opens a new bakery, will the incumbent actually lower their prices? Note: the entrant chooses the row, the incumbent chooses the column High price Low price 1,2 -1,1 0,1 Enter Don't enter 0, 10 O a. No, the threat is not credible O b. There isn't enough information to determine if the threat is credible or not O c. Yes, the threat is credible