As new firms enter an increasing-cost industry
A) the LRAC curve shifts down.
B) the LRAC curve shifts up.
C) the position of the LRAC curve doesn't change, but firms move down their LRAC curve.
D) the position of the LRAC curve doesn't change, but firms move up their LRAC curve.

Question

Quizplus · Accepted Answer

In an increasing-cost industry, as new firms enter the market, the demand for production inputs increases, leading to higher prices for these inputs. This results in an upward shift of the long-run average cost (LRAC) curve because it becomes more expensive for all firms in the industry to produce their goods or services.

As New Firms Enter an Increasing-Cost Industry