Answer: In an increasing-cost industry, where the entry of new firms causes an increase in per-unit costs, a higher price is necessary to induce more production.
As new firms enter the industry, they increase the demand for the factors of production, such as labor and raw materials, which leads to an increase in their prices. This increase in input costs results in higher per-unit costs for all firms in the industry, as they have to pay more to produce the same quantity of output.
To maintain profits and induce more production, firms must increase their prices to cover the higher per-unit costs. This higher price, in turn, encourages existing firms to increase production and new firms to enter the market, which further increases the demand for factors of production and drives up costs. This cycle continues until the market reaches a new equilibrium where the higher price reflects the higher per-unit costs of production.
Explanation: