What is the law of increasing opportunity cost?

The law of increasing opportunity cost states that as production of a good or service increases, the opportunity cost of producing one more unit of that good or service also increases. This occurs because resources are not perfectly adaptable to the production of all goods.

In practice, this means that when a producer focuses on increasing output of one product, they must start using resources that are less suited for that product, leading to declining efficiency and, consequently, higher costs in terms of what could have been produced instead with those same resources. For example, if a farmer is producing corn and decides to increase production at the expense of wheat, the resources drawn away from wheat production will yield less corn than if they were used for the wheat, thus raising the opportunity cost.

This principle reflects the reality of production in the economy, where not all resources can be perfectly switched between different types of production without incurring additional costs. Hence, the answer indicating that production increases lead to higher opportunity costs accurately captures this fundamental economic principle.