The correct answer is: Both (A) and (R) are correct and (R) is the correct explanation of (A).
Comparative cost theory is a theory of international trade that explains how countries can benefit from trade even if one country is more efficient at producing all goods than another country. The theory states that a country should specialize in producing goods in which it has a comparative advantage, which is a lower opportunity cost of producing that good than another country.
Comparative cost theory is based on the assumption that the supplies of factors of production are fixed. This means that the amount of land, labor, and capital available in a country does not change over time. This assumption is not always realistic, as the supplies of factors of production can change due to factors such as technological progress, immigration, and natural disasters. However, the assumption of fixed factor supplies is a useful simplification that allows us to understand the basic principles of comparative cost theory.
The assertion (A) is correct because comparative cost theory is based on the assumption of fixed factor supplies. The reason (R) is also correct because comparative cost theory states that a country should specialize in producing goods in which it has a comparative advantage. Therefore, both (A) and (R) are correct and (R) is the correct explanation of (A).
Here is a brief explanation of each option:
- Option A: (A) is correct, but (R) is incorrect. This option is incorrect because (R) is also correct.
- Option B: (R) is correct, but (A) is incorrect. This option is incorrect because (A) is also correct.
- Option C: Both (A) and (R) are correct, but (R) is not the correct explanation of (A). This option is incorrect because (R) is the correct explanation of (A).
- Option D: Both (A) and (R) are correct and (R) is the correct explanation of (A). This option is correct because both (A) and (R) are correct and (R) is the correct explanation of (A).