Can be converted to the third level (if the spell can be upcast)
Dragons as Inborn Spellcasters (MM)
A young or older dragon may innately cast a number of spells equal to
its charisma modifier. Each spell can be cast once a day, requiring
no hardware components, and the spell's level can not be higher than
one-third of the Dragon's Challenge rating (rounded down).
The charisma modifier for a young red dragon is +4.
The challenge is 10 (young red dragon, MM)
This is a rule variant, so make a decision (or recommend one to your DM)
At first glance, casting the spell at its lowest level is not a restriction. Since both spells can be cast according to their text and the dragon has the ability to cast the spell to the third level, he can then cast it to the third level. (Up cast them). It would more or less treat the dragon as a caster like a warlock.
But wait! Innate Incantation has a restriction
A monster with the innate ability to cast spells has the special Innate Spellcasting trait. Unless otherwise stated, an innate lot of level 1 or higher is always cast to its lowest possible level and can not be cast to a higher level.
This text suggests that the invisibility spell should be launched at level 2d and could not be launched.
Is there a loophole? May be. You can argue that there is an "otherwise noted" in the variant capacity of the dragon.
the spell level can not be greater than one-third of the Dragon Challenge value (rounded down)
This can be invoked as a specific case rather than a general one, which opens an exception to the general rule in that it limits only the dragon in its upper part. You can also argue (as Szega does) that this is not specific enough to override the general rule of casting innate spells.
Dragon variants are not described as having spell locations
A monster can cast a spell from its list at a higher level if it has
the location of the spell to do it. For example, a drow mage with the 3rd level
The Lightning spell can be cast as a 5th-level spell using one of the
his 5th level Spell Slots.
This leaves one to decide whether slot machines are even a thing for a dragon. If they are not, they are only limited by their CR at what level a spell is cast.
When a caster casts a spell using a higher slot
level as the spell, the spell assumes the highest level for this
molding. For example, if Umara launches Magic Missile using one of its
Level 2 slot machines, this magic missile is level 2. Indeed, the
the spell grows to fill the slot in which it is placed.
Once again we see how wide this variant is. Most other innate pitchers (such as the Archmage) have spell locations listed and represented. The dragon does not do it. So that goes back to the way the DM wants to deal with the Dragon spell spell: as a restriction or not? If as a restriction, opt for the simple decision. Otherwise, opt for the more nuanced decision.
Simple decision: can not be operated.
Because of the general limitations of the innate distribution, the easiest way to approach it is to "launch at the lowest level".
A more nuanced decision: yes, it can be upcast
The restriction specified at the spell level is based on the CR. The call to a specific general is that the text specific to the dragon only limits spells to the maximum level. This is not a solid argument, but it is a way of applying more specific than general. And it's a dragon.
As it is a variant of rule, its application will have to be decided by the SM.
Which decision is more fun at your table? Talk with your DM. It's a dragon – they named the game after these creatures.