Question

Answer the following questions (200 words minimum)

Independent trucking (i.e. large semi trucks) is an industry that can be considered perfectly competitive. Suppose that U.S. manufacturers produce less output. What impact will this have on the independent trucking industry in the short run, in terms of the market price, output of an individual firm, and market equilibrium quantity? Explain your reasoning. What impact will the increase in manufacturing output have in the long run? Explain your reasoning.

Answer 1

When a perfectly competitive firm produces a greater quantity output it's total revenue steadily increases at a constant rate determined the given market price and when manufacturers increases their outputs, the market supply line will shift to right causing a decrease in equilibrium price due to excess supply. Firm will increase their output to increase profits from demand. Market demand will also increase because their is an excess supply and low market price.

With S1, the typical firm is earning a positive total profit at Q1 because the market price is greater than ATC curve. When new firms enter the industry attracted by the profits, the market supply curve shift to the right until it becomes S2, which creates the market price P2, and at P2 each firm break even because P2 = ATC at the minimum point on the ATC curve. And when the manufacturing output increase then market supply will also increase, which casuses a decrease in market demand, firms will get more profit which inturn causes more firms to enter into the market in the long run.