MICROECONOMICS Discussion 7

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1.(1/2 page) 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. 2. Reply to two peers below with thoughtful responses: (1/2 page) a. The Trucking Industry is very competitive and that is shown through through the graphs. We see how selling (Q1) trucks and then charging a price(P1). The equilibrium point for the industry is indicated in figure one which shows point A. With their being a higher output the demand for trucks go up and that is when the market demand curve shifts to the right. The equilibrium which is short ran is point B shown on the Figure 2. The short run equilibrium arrives where firms face a higher price and are then able to sell their services at a higher price and make profit. Due to making such a large profit off something it drives others to join this industry in the long run and that makes the supply go up. With a constant cost and no change, it created a loss in movement and a new equilibrium is created with the same price but an increased amount in quantity. b. (see the attachment for graph) In a perfect competitive market there are large number of buyers and sellers. These buyers and sellers have no influence or control over the market price. When they enter the business they accept the market price available in the market. And these buyers and sellers can enter and exit the market anytime they want. The trucking industry is a perfectly competitive industry. As shown in the diagram below when an extra unit of output is produced there is an additional profit. When the firm is making total revenue more than the total cost it earns a profit. In diagram c. you see that the market price is greater than the average cost of production which is MR = MC and therefore in the short-run profit is being made since an extra unit of output generates revenue. But in the long-run when the manufacturing output increases it will create a loss for the firm. This is because more firms enter the enter the market due to the increasing profits and this can have an impact on supply and market price. Since there are more firm in the market producing the same good the market price for the product drops. This creates a loss for the firm since the total average cost of production is greater than the market revenue.

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