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Many Australian banana crops were destroyed by a cyclone
Many Australian banana crops were destroyed by a cyclone. Assume the banana growing market is a perfectly competitive market, show a theoretical model explaining the equilibrium position (profit/loss situation) for an individual banana producer before the cyclone. (you may assume that the banana industry was in the long-run equilibrium before the cyclone).
Expert Solution
Before the cyclone, the market is in the long run perfect competition, there is zero economic profit because of no barriers to entry or exit of new firms in the long run in the market. The normal profit earned is sufficient to give an economic incentives to farmers for growing bananas. After the cyclone hits, it reduces productivity in such a way that the supply of bananas shifts leftward with the same demand curve such that the price level increases and quantity decrease in an economy.
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