The US demand curve for transporting freight by truck is Q° = 580B – 60B ´ P, where B denotes billion. Here, P is the price to transport a standard shipping container one mile, and quantity Q is the number of shipping-container-miles transported in a year. The marginal cost of transport is $1/mile (i.e., fuel and driver costs). Each truck can drive up to a maximum of 100,000 miles/year. Assume each truck carries one shipping container. The annual fixed cost of operating a truck is $200,000. Consequently, the average cost of a truck that drives q miles a year is ($200,000/q) +$1. All trucks have the same costs. There are no barriers to setting up a new trucking firm and/or acquiring additional trucks, and there are large numbers of people capable of running a trucking firm. Part (a) Sketch average and marginal costs for a truck, as a function of miles driven. Part (b) (i) (ii) What is the price-per-mile of transporting freight by truck? How many miles does the combined US truck fleet drive each year?

The US demand curve for transporting freight by truck is Q° = 580B – 60B ´ P, where B denotes billion. Here, P is the price to transport a standard shipping container one mile, and quantity Q is the number of shipping-container-miles transported in a year. The marginal cost of transport is $1/mile (i.e., fuel and driver costs). Each truck can drive up to a maximum of 100,000 miles/year. Assume each truck carries one shipping container. The annual fixed cost of operating a truck is $200,000. Consequently, the average cost of a truck that drives q miles a year is ($200,000/q) +$1. All trucks have the same costs. There are no barriers to setting up a new trucking firm and/or acquiring additional trucks, and there are large numbers of people capable of running a trucking firm. Part (a) Sketch average and marginal costs for a truck, as a function of miles driven. Part (b) (i) (ii) What is the price-per-mile of transporting freight by truck? How many miles does the combined US truck fleet drive each year?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

The US demand curve for transporting freight by truck is
а° - 580B - 60в "Р,
where B denotes billion. Here, P is the price to transport a standard shipping container one
mile, and quantity Q is the number of shipping-container-miles transported in a year.
The marginal cost of transport is $1/mile (i.e., fuel and driver costs). Each truck can drive up to
a maximum of 100,000 miles/year. Assume each truck carries one shipping container. The
annual fixed cost of operating a truck is $200,000. Consequently, the average cost of a truck
that drives q miles a year is ($200,000/q) +$1.
All trucks have the same costs. There are no barriers to setting up a new trucking firm and/or
acquiring additional trucks, and there are large numbers of people capable of running a trucking
firm.
Part (a) Sketch average and marginal costs for a truck, as a function of miles driven.
Part (b)
(i)
(ii)
(ii)
(iv)
(v)
What is the price-per-mile of transporting freight by truck?
How many miles does the combined US truck fleet drive each year?
How many miles does each individual truck drive?
How many trucks operate?
What are the economic profits of each trucking firm?
Part (c) Automation increases the maximum number of miles per year of each truck to
200,000; reduces the marginal cost per mile to $0.50; and changes the average cost per mile to
($250,000/g) +$0.50. What is the qualitative impact of this technological change on quantities
(i), (ii), (iii), (v) that you characterized in part (b)? (Omit quantity (iv).) Include brief
explanations.

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