Suppose you run an independent trucking business- Roadhouse Trucking. You own a tractor trailer (18 wheeler) for hire. You work with a broker who offers you business to transport various cargos from one location to another. You can choose to take a particular job at the price offered or not. The broker works with many similar truckers. 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 the economy improves (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? What impact will this have on the firm`s profits? What impact will the increase in manufacturing output have in the long run on each of these variables? Show graphically and explain your reasoning. Your response should be 1-2 pages.
