Arrange the following steps that describe the effects of new firms entering an increasing cost industry on market dynamics: A. New firms enter the industry due to potential profits. B. The demand for labor increases, leading to higher wages. C. Average production costs rise for all firms. D. Some firms may exit the market due to higher costs.

When new firms see the opportunity to make profits, they decide to enter the market, which is the first step in this process. As these firms start operating, they need more workers, which increases the demand for labor and pushes wages higher. With higher wages, the average production costs for all firms in the industry begin to rise, making it more expensive for everyone to produce goods. As costs increase, some firms may find it hard to keep up and decide to exit the market. For example, if a new bakery opens and attracts customers, the demand for bakers increases, raising wages, and causing other bakeries to struggle with their costs.