Law of increasing costs - Wikipedia Law of increasing costs This article needs additional citations for verification. Please help improve this article by adding citations to reliable sources. Unsourced material may be challenged and removed. ( February 2009 ) Economics A supply and demand diagram, illustrating the effects of an increase in demand Index Outline History Branches Classification History of economics Schools of economics Mainstream economics Heterodox economics Economic methodology Economic theory Political economy Microeconomics Macroeconomics International economics Applied economics Mathematical economics Econometrics JEL classification codes Concepts Theory Techniques Economic systems Economic growth Market National accounting Experimental economics Computational economics Game theory Operations research By application Agricultural Behavioral Business Cultural Demographic Development Digitization Ecological Education Engineering Environmental Evolutionary Expeditionary Economic geography Financial Health Economic history Industrial organization Information Institutional Knowledge Labour Law Managerial Monetary Natural resource Organizational Personnel Economic policy Public economics Public / Social choice Regional Rural Service Socioeconomics Economic sociology Economic statistics Urban Welfare Welfare economics Lists Economists Publications ( journals ) Glossary Glossary of economics Business and economics portal In economics, the law of increasing costs is a principle that states that once all factors of production ( land, labor, capital ) are at maximum output and efficiency, producing more will cost more than average. As production increases, the opportunity cost does as well. The best way to look at this is to review an example of an economy that only produces two things - cars and oranges. If all the resources of the economy are put into producing only oranges, there will not be any factors of production available to produce cars. So the result is an output of X number of oranges but 0 cars. The reverse is also true - if all the factors of production are used for the production of cars, 0 oranges will be produced. In between these two extremes are situations where some oranges and some cars are produced. There are three assumptions that are made in this possibility. The economy is experiencing full employment ( everyone who wants to work has a job ), the best technology is being used and production efficiency is being maximized. So the question becomes, what is the cost of producing more oranges or cars ? If the economy is at the maximum for all inputs, then the cost of each unit will be more expensive. The economy will have to incur more variable costs, such as overtime, to produce the unit. The law also applies to switching production in a maxed out economy. Essentially, the economy is still producing more, so the law still applies. The only difference is that resources are being taken from one area and applied to another, instead of simply producing more of the same ( as assumed in the first paragraph ) Business and economics portal References Jump up ^ O'Sullivan, Arthur ; Sheffrin, Steven M. ( 2003 ). Economics : Principles in Action. Upper Saddle River, New Jersey : Pearson Prentice Hall. p. 17. ISBN 0 - 13 - 063085 - 3. This economic term article is a stub. You can help Wikipedia by expanding it. Retrieved from `` https://en.wikipedia.org/w/index.php?title=Law_of_increasing_costs&oldid=777140549 '' Categories : Economics laws Economic terminology stubs Hidden categories : Articles needing additional references from February 2009 All articles needing additional references All stub articles Talk About Wikipedia Add links This page was last edited on 25 April 2017, at 12 : 57. Text is available under the Creative Commons Attribution - ShareAlike License ; additional terms may apply. By using this site, you agree to the Terms of Use and Privacy Policy. Wikipedia ® is a registered trademark of the Wikimedia Foundation, Inc., a non-profit organization. About Wikipedia

Question: by definition the law of increasing opportunity costs states that
Answer: once all factors of production (land, labor, capital) are at maximum output and efficiency, producing more will cost more than average