Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
They lower the average production costs for all firms.
B
They keep the average production costs constant.
C
They raise the average production costs for all firms.
D
They only affect the production costs of the new firms.
Understanding the Answer
Let's break down why this is correct
Answer
In increasing cost industries, new entrants can raise the average production costs for everyone. This happens because when more companies enter the market, they compete for the same resources, like raw materials or labor. As demand for these resources grows, their prices can go up, leading to higher costs for all companies. For example, if many new coffee shops open in a town, they might bid up the price of coffee beans, making it more expensive for all coffee shops to buy them. So, while new businesses can bring more options for consumers, they can also make it costlier for existing businesses to operate.
Detailed Explanation
New companies entering an industry can raise costs for everyone. Other options are incorrect because Some might think new firms help lower costs for everyone; It's a common belief that new firms don't change costs.
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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