Q1. [16 Marks] Drought to Hit Canola

Australia's east coast drought will cut next season's Canola production. But if rain returns, the crop could bounce back the following season. The global price of Canola is forecast to rise as a result of the fall in production.

a) The market for Canola, it could be argued, follows the required features of a perfectly competitive market. List three features of an "idealized" perfectly competitive market that apply to the market for Canola. (3 marks)

b) Describe the canola market as a whole and the cost and revenue of one farm in 2020, assuming that all firms are making zero economic profit. Use well labelled graphs to assist your explanation. (5 marks)

c) Starting with the industry in long-run equilibrium, using your diagram from above explain how the drop in the canola crop next season, other things remaining the same, affects the canola market and an individual producer in the short run. (4 marks)

d) Starting with the industry in next season's short run equilibrium, using diagrams explain how an increase in production the following season, other things remaining the same, affects the canola market and an individual producer. (4 marks)