ECO 101
July 17, 2022
Independent Trucking Analysis
In following graph, left panel shows the market equilibrium where demand and supply curves (D1 and
S1) intersect at point A with market price P1 and market quantity Q1.
In right panel, firms consider P1 as their relevant price and produces at point A' where P1 intersects
MC with firm output Q1. In long run equilibrium, economic profit is zero, so price equals Average
Cost (AC), so P1, AC and MC intersect at common equilibrium point A'.
The economy improves caused by higher manufacturing output will increase the demand for
independent trucking. As demand increases, D1 shifts rightward to D2, intersecting S1 at point B with
higher market price P2 and higher market output Q2.
For firms, P2 is their relevant new price. New short run equilibrium is at point B', where P2 intersects
MC with higher firm output Q2. Firms earn short-run economic profit (Area circled in blue）
In long run, economic profit attracts new entry, increasing market supply, shifting S1 shift to S2. New
long run equilibrium is at point C where D2and S2 intersect at original price P1 but higher market
quantity Q3. Thus, firms return to initial long run equilibrium point A'.
