When compared to the PS2 era factoring inflation and so on I don't think Game's development has become that much more expensive , cost's of development will soon go down as a number of factors change ( improved development techniques , cheaper development tools etc ).
I agree somewhat with what Twestern said I think technological cost's are an issue but not the main one , developers are pressured to increase the quality of animation , detail , story line , voice acting , presentation etc ; this takes time and resources the market doesn't want Grand Theft Auto HD it wants MORE MORE MORE and that's what the developers are forced to give if they want to survive ( Which ironicaly makes profitability more difficult).
We have quite a few profitable HD games but there is an issue with overall consistency , the market doesn't seem to be able to support a diversified range of HD games so we get the occasional Mirrors edge with Battlefront , Haze , Dead Space and Far Cry in between..
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