Question: Given the following payoff matrix

(The strategies for firm A are low price and high price and the strategies for firm B are enter and don’t enter)

(a) indicate the best strategy for each firm

(b) Why is entry-deterrent threat by firm A to lower prices not credible to firm B? (this question is asking whether firm A will use the low price as a threat if firm B enters)

(c) What could firm A do to make its threat credible without building excess capacity?