In an increasing cost industry, the entry of new firms will inevitably lead to a decrease in average production costs for existing firms due to economies of scale.

In an increasing cost industry, as new firms enter the market, they often increase demand for resources like labor and materials. This increased demand can drive up the prices of these resources, making it more expensive for existing firms to produce their goods. Unlike in decreasing cost industries, where larger production can lower costs, in increasing cost industries, the average production costs may rise for everyone. For example, if several new companies start making shoes, the price of leather may go up, making it costlier for all shoe manufacturers. Therefore, the entry of new firms does not lead to a decrease in average production costs; instead, it can raise costs for existing firms.