Final answer:
New firms entering an increasing-cost industry tend to increase resource prices due to competition for limited inputs like skilled labor. This competition results in higher production costs and a more inelastic supply curve. If one production input becomes relatively more expensive, firms will adjust by changing their production technology to maintain profitability.
Step-by-step explanation:
New firms entering an increasing-cost industry will usually increase resource prices. In this type of industry, as more firms enter the market, they often compete for the same limited inputs like skilled labor, which can lead to higher wages and an overall increase in the costs of production.
These higher costs are then reflected in the industry supply curve becoming more inelastic, and ultimately result in a new zero-profit level intersecting at a higher price than before.
When a production input becomes more expensive, firms will look for ways to adjust their production technology. They might seek out alternative inputs, innovate to become more efficient, or change their production methods to mitigate the increased costs and maintain profitability.
In the case of a technological improvement leading to reduced costs, this can temporarily increase profits for existing firms. However, as new firms enter the market attracted by these profits, the supply curve will shift right, driving prices down until economic profits reach zero and the industry stabilizes at a new equilibrium.