What does the law of increasing costs state?

The law of increasing costs states that as production of a good or service increases, the opportunity cost of producing additional units also increases. This concept is rooted in the idea that resources are not perfectly adaptable to the production of all goods. As production continues to increase, resources that were previously very productive in producing a particular good may need to be reallocated from the production of other goods where they are more efficient.

For instance, if a company is manufacturing both cars and bicycles, as it decides to produce more cars, it might have to divert resources (such as labor and materials) that could have been used for bicycles. Since not all resources are equally suited for the production of each good, reallocating them leads to less efficiency in the production of the goods being given up, resulting in higher opportunity costs.

This principle helps to illustrate why economies cannot scale production of all goods indefinitely without experiencing increasing costs. As an economy or a company seeks to produce more of one item, the trade-offs that appear in the form of opportunity costs grow, making this the correct answer.