Explain how the law of increasing cost would apply in Capeland if the country decided to direct more resources into making shoes than into growing watermelons?

The law of increasing costs would apply because Capeland was already using its factors of production (land, labor, captital) at their maximum: there is full employment (every person who wanted a job is working), the best possible technology is used and hence and efficiency in production has been maximized.

In this situation, producing extra units would imply an increase on average (per item) costs, because as the economy is already functioning at its full capacity, the only manner of producing more is increasing variable costs. Each unit of each factor of production would become more expensive, for example, paying overtime to employees.

The law of increasing cost would apply in Capeland, based on the principle that all the resources would be directed to produce shoes, and wouldn't be any factors of production available to produce watermelons. So, to produce them, it would cost more than average.