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Fill out the settlement statement form for the transaction described below. The various closing costs will be allocated between the parties in the customary way unless otherwise noted. Use a 360-day year and 30-day month for your prorations. Round dollar amounts to two decimal places for each step in your calculations. DO NOT change anything else in the worksheet. DO NOT fill in any white cells. The gray cells require formulas, and the yellow cells require numbers provided in the case.

The house at 314 Baker Street, in Los Angeles County, sells on January 28 for $575,000. The

offer that the seller accepts is accompanied by a $10,000 good faith deposit. The purchase

agreement calls for the buyer to make a 10% down payment and obtain an 80%, 30-year

conventional loan with an annual interest rate not to exceed 6%.

The seller agrees to accept a five-year straight note secured by a deed of trust for the balance of the purchase price; the interest rate on this seller second will be 8%. The seller will also pay up to $4,000 toward any discount points charged by the buyer's lender. The closing is to take place on March 14.

The buyer obtains the necessary loan commitment from Clearwater Bank. The appraised value

of the property is $580,000. The terms of the commitment include an 80% loan for 30 years

at 6% annual interest, a 1% origination fee, and two discount points.

Suppose the Beer industry (good X) is characterized by Monopolistic Competition in both the Home and Foreign country. The different producers offer differentiated products based on the tastes of their beer. Otherwise, the beer producers are in all ways identical. They each face a linear demand curve of the type described in Lesson 8: for any firm i. Fixed Costs are F=$10M, Marginal costs are constant C=$20 per keg. b=.01. The size of the home market is 10M kegs, and foreign is 25M kegs. [Review your Lesson 8 notes/videos for details on the terms of the equation in addition to how to solve the problem.]

How many firms will produce in the home market in autarky? How much output for each firm? What is the price per keg of beer? How many firms will produce in the foreign market in autarky? How much output for each firm? What is the price per keg of beer? (If your answer is not a round number, round DOWN to get n. Fractions of a firm don't make sense.) Why should we only round n down in problems like this rather than follow conventional rounding rules? Explain in a short paragraph. How many firms will produce in equilibrium when the countries open for trade? How much output for each firm? What is the price per keg of beer?

(22 points) Suppose it is costly to transport exports. Let this cost be equal to some number T per unit. We are going to investigate some features of how the presence of T impacts the monopolistic competition model with trade. Assume all firms are the same in each country, and that each country is the same size. The problem is written to help guide you to the solution in a series of (hopefully) not too demanding steps. (Most of these steps I sort of do for you.)

A) Let Phh be the price a home firm charges in the home country, Phf be the price a home firm charges in the foreign country, Pfh be the price a foreign firm charges in the home country, and Pff be the price a foreign firm charges in the foreign country.

B) Also adopt notation where Xhh is the quantity of beer a home country sells at home, with other Xs defined the same way.

C) (4 points) A firm considering the prices to charge in each market will evaluate each market separately, since the trade cost introduces a friction that makes each market imperfectly integrated. When we had no transaction costs, we found in lecture that . The term equalled 1/n since we had total symmetry, which was nice. Since firms now need to charge different prices in each country, this new asymmetry will not allow for the same simplification here. Write out four MR relationships. For instance, MRhh will be

D) (4 points) Set the MRs equal to MC. Note that when a firm is exporting, the MC=C+T.

E) (4 points) Calculate the Markup over MCs for the Home firm in both markets. For instance,

F) (4 points) Will the markup be larger for the home firm when selling at home or foreign? Why? [Hint: Think about what will happen to its market share in foreign now that it has to pay a transportation cost.]

G) (2 points) Given your answer to g, write down an inequality relating how the value Phh compares to the Phf minus transport costs.

H) (4 points) The result for g describes a phenomenon called "dumping." The price charged by the home country firm in the foreign market, minus the cost of transport, is actually lower than the price the firm charges at home. "Dumping" is frowned upon by many governments. Suggest a couple reasons why. As an economist, what is your view?

Suppose the Beer industry (good X) is characterized by Monopolistic Competition in both the Home and Foreign country. The different producers offer differentiated products based on the tastes of their beer. Otherwise, the beer producers are in all ways identical. They each face a linear demand curve of the type described in Lesson 8: for any firm i. Fixed Costs are F=$10M, Marginal costs are constant C=$20 per keg. b=.01. The size of the home market is 10M kegs, and foreign is 25M kegs. [Review your Lesson 8 notes/videos for details on the terms of the equation in addition to how to solve the problem.]

How many firms will produce in the home market in autarky? How much output for each firm? What is the price per keg of beer? How many firms will produce in the foreign market in autarky? How much output for each firm? What is the price per keg of beer? (If your answer is not a round number, round DOWN to get n. Fractions of a firm don't make sense.) Why should we only round n down in problems like this rather than follow conventional rounding rules? Explain in a short paragraph. How many firms will produce in equilibrium when the countries open for trade? How much output for each firm? What is the price per keg of beer?

Alberto runs a small but very successful coffee shop inside a busy mall in Peterborough. His wife and he run this coffee shop 7 days a week from 11 am to 8 pm. Other shop owners at the mall love their coffee and have become loyal customers of their business. Sonia, who runs a chain of flower shops in several malls, including theirs, have approached them with an idea to expand their business to other malls in the area. She claims to have a lot of connections with financial intermediaries who may be able to help fund the expansion. In fact, she promises to share with Alberto, the financial information and business proposal prepared by one of her competitors who successfully applied for a loan few months ago. According to her, she is best friends with Caroline who is working for a local bank as a manager and can help them get the required amount even without any documentation. She is asking for a promise to pay 5% of the loan amount to her as "fees" for her services.

Required:

Given your understanding of the business ethics, what is your advice to Alberto and his wife? Explain with reference to the moral leadership concept that we discussed in class. (5 marks)

Relate the above scenario using the front-page, personal gains, and the good night's sleep tests. What are your thoughts?