1. What market structure most appropriately describes the bananas growing industry? In this study case, the most appropriate market structure is perfect competition. The distinct features of this market structure are: 1. Large number of buyers and sellers. 2. Sellers sell homogenous products. 3. Firms and consumers are price takers. According to these, many evidences in this case imply the banana-growing industry is a perfect competition market. The most obvious one is importing banana from Asian will hurt the domestic growers a lot. Also supermarket giant Coles announcement about they will not try to cover the banana shortage and the implement from the federal government shows the import competition is discouraging effect on price of domestic banana. When Cyclone Yasi crossed the north Queensland coast in February 2011 some 90 percent of Australia’s banana crop was again destroyed, with many of the farmers previously affected by the cyclone Larry facing economic ruin (ABC News, 2011) These two points prove that both domestic and foreign sellers sell homogenous product (foreign banana and domestic one are close substitute), also domestic banana sellers and consumers are price takers (firm cannot charge a price either higher or lower than the market price). As a result in this case the banana-growing industry is a perfect competition market.
2. Explain and illustrate, what the likely short-run effect f the cyclone is on the cost curves of a bananas growing firm in the cyclone-affected region? In the short run, both average total cost (ATC) and marginal cost (MC) will increase. Based on the law of diminishing marginal returns, when products expand, the return of per unit product is decreasing. On the on the other hand both MC and ATC are increasing. The examples in this case are The nature of the problems which can arise from this can be seen in the case of the increase in the cost of bananas associated with Cyclone Larry. Between March 2006 and September 2006...
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