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According to the source, what happens to production costs in an increasing cost industry as the market expands, and why?
ACosts become impossible to measure at all
BCosts rise, since scarce skilled labor pushes wages up
CCosts fall due to improved technology industry-wide
DCosts stay exactly the same for every single firm
Answer & Solution
Correct answer: B. Costs rise, since scarce skilled labor pushes wages up
1. An increasing cost industry is defined by production costs rising as the industry expands.
2. This often happens because some inputs, such as skilled labor, are limited.
3. As the expanding industry demands more of that limited input, its price, such as wages, gets bid up.
4. Rising input costs raise production costs for every firm in the industry, not just new entrants.
_Source: OpenStax Principles of Microeconomics for AP Courses (CC BY 4.0), Ch 8 "Perfect Competition", section 8.3 | Entry and Exit Decisions in the Long Run_
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