A measure of monopoly power, the percentage markup of price over marginal cost (P-MC)/P is called:

Question

Quizplus · Accepted Answer

The percentage markup of price over marginal cost (P-MC)/P is known as the Lerner Index of market power. It measures the degree of monopoly power a firm has in a market. The closer the index is to 1, the higher the degree of market power. The percentage markup of price over marginal cost (P-MC)/P is known as the Lerner Index of market power, which measures the degree to which a firm has market power or monopoly power. The larger the value of (P-MC)/P, the larger is the Lerner Index, indicating a higher degree of market power. Thus, B is the correct choice. The Inverse Elasticity Pricing Rule, Monopoly Midpoint Rule, and Market Power Rule are other pricing rules or concepts, but they do not directly measure monopoly power.

A Measure of Monopoly Power, the Percentage Markup of Price