Question : Statement 1: The marginal rate of transformation (MRT) indicates the opportunity cost of producing one more unit of a good in terms of the other good.
Statement 2: The MRT is constant along the PPC, assuming a linear production possibilities curve.
Option 1: Statement 1 is true, and statement 2 is false.
Option 2: Statement 1 is false, and statement 2 is true.
Option 3: Both statements 1 and 2 are true.
Option 4: Both statements 1 and 2 are false.
Correct Answer: Statement 1 is true, and statement 2 is false.
Solution : The correct answer is (a) Statement 1 is true, and statement 2 is false.
Statement 1: The marginal rate of transformation (MRT) indicates the opportunity cost of producing one more unit of a good in terms of the other good. This statement is true. The MRT measures the rate at which one good must be sacrificed to produce an additional unit of another good, representing the opportunity cost.
Statement 2: The MRT is constant along the PPC, assuming a linear production possibilities curve. This statement is false. Along a linear PPC, the MRT is not constant but changes as the production levels of the two goods vary. The MRT tends to increase as more of one good is produced and fewer resources are available for the production of the other good.
Therefore, Statement 1 is true, and statement 2 is false.
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