If the demand for a product increases in an increasing-cost industry, as the market adjusts in the long run, production costs for all firms will
A) rise as new firms enter the industry.
B) fall as new firms enter the industry.
C) remain unchanged.
D) fall as firms exit the industry.

Question

Quizplus · Accepted Answer

In an increasing-cost industry, the cost of production increases as the industry expands. When demand increases, existing firms will increase their production, which will increase the demand for inputs, such as labor and raw materials, driving up their prices. As a result, new firms will enter the industry, driving up the prices of inputs even further. Therefore, in the long run, production costs for all firms will rise as new firms enter the industry.

If the Demand for a Product Increases in an Increasing-Cost