The major product formed in the following reaction is

Concept:

This reaction proceeds via carbene mechanism followed by rearrangement.

Neutral reaction intermediates having six valance electrons are called carbenes, which are of two types. 

singlet:

It is bent in shape, sp² hybridised, two electrons are paired, less stable.

Triplet:

It can remain in two possible ways

sp² hybridized, bent in shape 

or sp hybridised, linear in shape 

There are four methods to synthesize carbene

(i) Thermal decomposition of diazo compounds:

(ii) -elimination of HX from haloform:

(iii)-elimination of X from RCHX₂ in presence of a metal or  an organolithium

(iv)Removal of H⁺ from a cation in the presence of a strong base like NaOH

Explanation:

The mechanism of the reaction is given below.

Conclusion:

Hence the correct answer is option 3.