Since the production possibility frontier provides the production points at which Jerry (an individual stranded on an isolated island) is maximizing his use of time, it also shows the trade-offs of producing a certain amount of each good. Suppose Jerry is being efficient and is producing at a point on the frontier. If he wants to catch one more fish, he has to give up time spent gathering bananas (and vice versa). This trade-off in moving between points along his production possibility frontier shows Jerry's opportunity cost in production. Opportunity cost is the value or benefit of the next best alternative given up when making a choice.Jerry's PPF shows that in the same time that he can catch two fish, he could gather one bunch of bananas. His opportunity cost reflects that for every bit of additional time he spends catching fish, he has less time to spend gathering bananas. If Jerry's opportunity cost is constant (he doesn't face other costs like renting a boat, etc), every time he catches one more fish, he gives up gathering half of a bunch of bananas. By drawing a straight-line production possibility curve for Jerry, it is assumed he faces constant opportunity costs in his decision of how many fish and bunches of bananas to collect. It won't cost him more (he doesn't use a more expensive boat or pay rent on a banana harvesting tool) to catch fish. He will then catch fish and gather bananas based on how many of each he wants.
Jerry's Opportunity Cost
Jerry's Adjusted Production Possibility Frontier
To further the example, at times Jerry's opportunity costs may increase. Because Jerry’s only resource is his time, anything that makes the collection of bananas or catching of fish more time intensive will affect his opportunity cost. For example, if Jerry needs to climb higher and higher to collect bananas from a tree, it will take more of his time to collect the same number of bananas as before, which takes away time he can spend fishing. If he must go further and further into the ocean to catch fish, he won’t be able to spend as much time collecting bananas. Now, instead of a straight line, Jerry's production possibility frontier is a bowed-out curved line, which illustrates his increasing opportunity cost.