Assignment:
Economy A is producing two goods, x and y, using both capital and labour in the production of each good. The labour force can produce either 300 units of y or 100 unit of x or any linear combination of the two. The stock of capital can produce either 200 units of y or 400 units of x. The economy is initially producing (and consuming) 50 units of x. There is now an increase of 10% in the stock of capital without affecting the productivity of either capital or labour. Therefore, the competitive price of x would fall from 4 y per x to ½ y per x. True or false? Explain.