Question: (a) Freda has a utility function (X,Y)=XY , so her marginal utility of X, X=Y and her marginal utility of Y, Y=X . The price

(a) Freda has a utility function (X,Y)=XY , so her marginal utility of X, X=Y and her marginal

utility of Y, Y=X . The price of X is $1 and the price of Y is $2 and Freda chooses to consume

25 units of good Y. How much X must she be consuming at her optimal allocation? Explain why at

her optimal consumption allocation she cannot be choosing more or less X.

(b) Tickets for a U2 concert are $100 each but the tickets quickly sell out and there are many people

who want to go to the concert but cannot get tickets. Draw a diagram to illustrate the demand

and supply for the U2 tickets and why there are people who cannot get tickets at $100.

(c) Is there a deadweight loss in this situation? If there is, illustrate it in the diagram above.

(d) Explain two alternative things that the band could do to make sure everyone who is willing to pay

the advertised price for tickets can attend the concert.

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