Light

Increasing Opportunity Cost

Definition

Increasing opportunity cost refers to the concept that as more of a particular good is produced, the opportunity cost of producing additional units of that good increases. This means that resources become less suited for producing the second good and more suited for producing the first good.

Analogy

Imagine you have a limited amount of time after school to either study or play video games. At first, if you choose to study for an hour, you might only give up playing 30 minutes of video games. But as you continue to study, the opportunity cost of studying increases because you are giving up more and more time playing video games.

Related terms

Law of Increasing Opportunity Cost: This law states that as production switches from one good to another, increasing amounts of resources are needed to produce each additional unit.

Production Possibilities Frontier (PPF): The PPF illustrates all possible combinations of two goods that can be produced given available resources and technology.

Marginal Cost: Marginal cost refers to the additional cost incurred when producing one more unit of a good or service.