In the question given below there are 2 statements marked as Assertion (A) and Reason (R). Choose the correct alternative from the following options.

Assertion (A)- Production possibility curve is a concave shaped curve.

Reason (R)- Diminishing marginal rate of substitution cause the shape of the curve to be concave.

(A) Is true but (R) is false.

The correct answer is Option 3: (A) Is true but (R) is false.

Assertion (A)- Production possibility curve is a concave shaped curve. This is correct. Production possibility curve gives all the maximum possible combinations of 2 goods that can be produced with the available resources and technology in the economy. The shape of PPC is concave in nature. This curvature reflects increasing opportunity cost as production of one good increases.

Reason (R)- Diminishing marginal rate of substitution cause the shape of the curve to be concave. It is false because it incorrectly attributes the concave shape of the PPC to the diminishing marginal rate of substitution. Instead, it should attribute it to the diminishing marginal rate of transformation, which represents the increasing opportunity cost as resources are reallocated between the production of two goods.

Diminishing marginal rate of substitution (MRS) and diminishing marginal rate of transformation (MRT) are two concepts in economics that describe different phenomena.

1. Diminishing Marginal Rate of Substitution (MRS):

   • MRS refers to the rate at which a consumer is willing to give up one good in exchange for another while maintaining the same level of satisfaction or utility.
   • It measures how much of one good a consumer is willing to forego to obtain an additional unit of another good.
   • The law of diminishing marginal rate of substitution states that as a consumer consumes more of one good and less of another, the marginal utility of the good being consumed more decreases relative to the other good, leading to a diminishing MRS.

2. Diminishing Marginal Rate of Transformation (MRT):

   • MRT refers to the rate at which an economy must sacrifice the production of one good to produce more of another good, while maintaining a constant level of total production.
   • It measures the amount of one good that must be given up to produce an additional unit of another good.
   • The law of diminishing marginal rate of transformation states that as an economy reallocates resources from the production of one good to the production of another, the opportunity cost increases, leading to a diminishing MRT.