Answer to Question #144521 in Microeconomics for Trystin

Question

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?

Answer 1

$$Solution$$

The trucking industry is a perfectly competitive industry that is presently in the long-run as will be depicted in the graphs below and selling $Q_1$ trucks and charging a price of $P_1$. The long-run equilibrium point for the industry and the firm is A.

There is no economic profit in the long-run.A typical firm sells $Q_1$ number of trucks. Given a higher output the demand for trucks increases and the market demand curve shifts to the right.The short-run equilibrium is arrived at B where firms face a higher price $P_{SR}$ and therefore they will be able to sell $q_{SR}$ at a profit.

Due to this profit margins, more firms enter the industry in the long-run and when that happens, the supply shifts rightwards. With the constant constant cost industry, there will be a movement along the marginal cost curve and a new equilibrium is restored with same price but with increased quantity $Q_2$.