One method of measuring the extent of a firm's market power is

Question

Quizplus · Accepted Answer

The Lerner index is commonly used to measure the extent of a firm's market power as it measures the difference between the price and the marginal cost of a good. A higher value of the Lerner index indicates a greater ability of the firm to set prices above marginal cost and implies a higher degree of market power. Price elasticity of demand for the firm's product is also a good indicator of market power as a higher elasticity suggests that the firm faces more competition and has less market power. Therefore, both options A and B are good choices as they provide complementary information about a firm's market power. Income elasticity of demand may also provide useful information, but it is not directly related to measuring market power.

One Method of Measuring the Extent of a Firm's Market