Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
The entry of new firms raises production costs for all firms due to increased labor competition.
B
The average production costs remain unchanged despite new entrants in the market.
C
Wages decrease as more firms enter the market, leading to lower costs.
D
The supply curve shifts to the right as more firms enter, reducing prices.
Understanding the Answer
Let's break down why this is correct
Answer
In an increasing cost industry, as demand for a particular skill or resource rises, the costs associated with that skill or resource also increase. In this case, when a new technology company enters the smartphone market, it creates more competition for skilled software developers. As more companies compete for these developers, they offer higher wages to attract them, which raises the overall cost of hiring skilled workers in that industry. This situation shows that as the demand for software developers grows, the costs associated with hiring them increase too, illustrating the concept of increasing cost industries. For example, if a software developer's average salary was $80,000 and then rose to $100,000 due to high demand, this increase in wage reflects the rising costs in that industry.
Detailed Explanation
When new companies enter the market, they need skilled workers. Other options are incorrect because Some might think that new companies don't change costs; This option suggests that wages go down with more companies.
Key Concepts
Increasing cost industries
Market dynamics
Supply and demand
Topic
Increasing Cost Industries
Difficulty
easy level question
Cognitive Level
understand
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