Question

Independent trucking is an industry that can be considered perfectly competitive. Draw a graph showing market supply, market demand, and equilibrium price and quantity. Draw a corresponding graph for the individual firm/trucker using the market equilibrium price and marginal cost curve. If you line up the two graphs horizontally, the equilibrium price should be the same on both graphs.

Now suppose that GDP increases as U.S. manufacturers produce more 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? Show graphically and explain your reasoning.

Answer 1

Truck industry is a perfectly competitive industry that is presently in the long-run and selling Q1 trucks and charging a price of P1.The long-run equilibrium point for the industry and the firm is A,as shown in figure

1. There is no economic profit in the long run A typical firm Q1 number of trucks

With higher output the demand for trucks increase and the market demand curve shifts to the right.the short-run equilibrium is arrived at B where firms face a higher price PSR and hence they are able to sell QSAR at a profit.

this profit encourages more firms to enter the industry in the long run when that happens, the supply shifts rightwards.With the constant cost industry there is only a movement along the marginal cost curve and a new equilibrium is restored with same price but increased quantity Q2.