Question

Continue to assume that a typhoon occurs each year with probability 1/12 and that a typhoon will destroy bananas from exactly half of the farmers who choose to plant in a particular year. Further suppose that Australian farmers have the option of exporting bananas to the world at a price of $2.00. Assume that 116 farmers choose to plant in a given season and each farmer produces exactly 12,500 kilograms of bananas. Draw the supply and demand system for the case where a cyclone does not occur. How many bananas will Australia export in this case? Draw the supply and demand system for the case where a cyclone does occur. Calculate the surplus of each farmer (after planting) and show that it is exactly equal to the planting costs.