The market demand for trucking services is:
P = 500 – 0.004Q
where Q is the number of units of trucking services demanded at the price P of a trucking service unit.
Before trucking deregulation occurred in 1980, the industry priced as a government sanctioned cartel (i.e., as a monopoly). Suppose that each trucking firm in the industry had a total cost function of
TC = 10 + q + 0.5q2
where TC is the firm’s total cost when the firm produced q trucking units.
Suppose there were 500 trucking firms in the market before deregulation.
After deregulation, the market became perfectly competitive (but initially with just these 500 firms).
How much did the price change between regulation and deregulation? After deregulation, were these firms still profitable? In the long run, what would you expect to happen (qualitatively) in this industry? Not all quantities or prices may be in integers.
The price change between regulation and deregulation was ___________
After deregulation, the typical firm made ___________ in profit
In the long run, I would expect (qualitatively) ______________ to happen in this market