Explain the Law of Increasing Opportunity Cost and its reason.

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Before we take a look at the law of increasing opportunity cost, let's first look at what opportunity cost is. Opportunity cost is the loss when the best alternative is chosen—so it's what is given up when an alternative is chosen. The law of increasing opportunity cost says that as...

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Before we take a look at the law of increasing opportunity cost, let's first look at what opportunity cost is. Opportunity cost is the loss when the best alternative is chosen—so it's what is given up when an alternative is chosen. The law of increasing opportunity cost says that as you increase the production of one good, the opportunity cost to create a subsequent good is increased. So, for example, if an ice cream shop expanded its business to also produce cakes, the law of increasing opportunity cost would be in effect. This is to say that the company would be giving up more by producing cakes as well as ice creams. This occurs for several reasons, which usually include the cost of equipment, training, and labor. In our example, the ice cream shop would need to buy new equipment to produce the cakes, as they would only have had equipment to produce ice cream. Additionally, they would need to either train their staff to be able to bake the cakes or to hire new employees who were skilled to do this.

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