Assume that Crystal Sugar is a perfectly competitive firm operating in a perfectly competitive market and initially at the long-run equilibrium point of operations. Recent flood has damaged a vast harvest of sugar cane and increasing the wages of workers, leading to the firm shutting down in the short run and not producing in the long run.

Explain the flood effect on the equilibrium in the short run and how that impacted the market price (due to wage and other raw material price increase) reduced the profit, created losses for some firms (including Crystal Sugar), and how they can not withstand the price pressure and left the industry using the diagram.

Firm In P.C Industry in P.C. E E MC S AC PI PI DEAR MR 01